Use the following information to answer questions 15-18 A company is considering investing in two projects; Classy and Sassy with initial investments of $200,000 and $80,000, respectively. Each project is expected to have a life of five (5) years and an ending book value of $120,000. The expected profits generated by the projects are as follows: Profits after tax and depreciation Project Classy Project Sassy $ $ 60,000 20,000 60,000 40,000 30,000 80,000 30,000 22,000 60,000 38,000 240,000 200,000 15. The average profit per annum for project Classy would be? a. $60,000 b. $48,000 c. $240,000 d. $200,000 16. The average profit per annum for project Sassy would be? a. $40,000 b. $38,000 c. $80,000 d. $20,000 17. he accounting rate of return (ARR) on average capital for project Classy would be? a. 20% b. 12.5% c. 30% d. 40% 18. The accounting rate of return (ARR) on average capital for project Sassy would be? a. 50% b. 33% c. 20% d. 40% 19. The following data relates to a company’s decision on whether to purchase a machine costing $200,000. The salvage value is estimated at $12,000 and the annual after-tax net income is $45,000. Determine the machines’ accounting rate of return, assuming even receipt of its net cash flows during the year and use of straight line depreciation. a) 45% b) 42.5% c) 22.5% d) 23.5% 20. Which statement best describes capital budgeting? a) The potential benefit lost by choosing between two alternatives b) The decision to accept or reject additional projects c) The pay-back period on investments d) The process of deciding how to allocate the firms scarce resources
Use the following information to answer questions 15-18
A company is considering investing in two projects; Classy and Sassy with initial investments of $200,000 and $80,000, respectively. Each project is expected to have a life of five (5) years and an ending book value of $120,000. The expected profits generated by the projects are as follows:
Profits after tax and
|
Project Classy |
Project Sassy |
|
$ |
$ |
|
60,000 |
20,000 |
|
60,000 |
40,000 |
|
30,000 |
80,000 |
|
30,000 |
22,000 |
|
60,000 |
38,000 |
|
240,000 |
200,000 |
15. The average profit per annum for project Classy would be?
a. $60,000
b. $48,000
c. $240,000
d. $200,000
16. The average profit per annum for project Sassy would be?
a. $40,000
b. $38,000
c. $80,000
d. $20,000
17. he accounting
a. 20%
b. 12.5%
c. 30%
d. 40%
18. The accounting rate of return (ARR) on average capital for project Sassy would be?
a. 50%
b. 33%
c. 20%
d. 40%
19. The following data relates to a company’s decision on whether to purchase a machine costing $200,000. The salvage value is estimated at $12,000 and the annual after-tax net income is $45,000.
Determine the machines’ accounting rate of return, assuming even receipt of its net cash flows during the year and use of straight line depreciation.
a) 45%
b) 42.5%
c) 22.5%
d) 23.5%
20. Which statement best describes capital budgeting?
a) The potential benefit lost by choosing between two alternatives
b) The decision to accept or reject additional projects
c) The pay-back period on investments
d) The process of deciding how to allocate the firms scarce resources
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