Sad Company is considering the purchase of a new machine that would cost $80,000. The machine would have a useful life of 8 years. Sad Company plans on using straight-line depreciation with an estimated salvage value of $0. Sad Company has a hurdle rate of 12% and is subject to an income tax rate of 80%. The annual cash income is estimated to be $50,000. PV .   1- The Accounting Rate of Return (AROR) is:   10 % 11 % 12 % 9 % 8 % 2-The Net Present Value (NPV) is:   $10,424 $9,424 $11,424 $8,424 $11,424 3-The Profitability Index (PI) is:   1.02 1.12 1.22 0.92 0.82 The Payback period is: A. 4.044 years   B. 4.144 years   C. 4.244 years   D. 4.344 years   E. 4.444 years   Using interpolation, the Internal Rate of Return (IRR) is: 14.4 % 13.4 % 12.4 % 15.4 % 16.4 %

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Sad Company is considering the purchase of a new machine that would cost $80,000. The machine would have a useful life of 8 years. Sad Company plans on using straight-line depreciation with an estimated salvage value of $0. Sad Company has a hurdle rate of 12% and is subject to an income tax rate of 80%. The annual cash income is estimated to be $50,000. PV .

 

1- The Accounting Rate of Return (AROR) is:

 

10 %

11 %

12 %

9 %

8 %

2-The Net Present Value (NPV) is:

 

$10,424

$9,424

$11,424

$8,424

$11,424

3-The Profitability Index (PI) is:

 

1.02

1.12

1.22

0.92

0.82

The Payback period is:

A. 4.044 years

 

B. 4.144 years

 

C. 4.244 years

 

D. 4.344 years

 

E. 4.444 years

 

Using interpolation, the Internal Rate of Return (IRR) is:

14.4 %

13.4 %

12.4 %

15.4 %

16.4 %

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