Question

The Scanning Photo Company would like to purchase a new photo scanner for $85,000. The scanner...

The Scanning Photo Company would like to purchase a new photo scanner for $85,000. The scanner is expected to generate a cost savings of $23,000 per year for five years. The company's cost of capital is 8 percent. Factors for an 8 percent interest rate for five years are shown below:

Future Value of $1

1.470

Present Value of $1

0.681

Future Value of an Annuity

5.867

Present Value of an Annuity

3.993

The net present value of the project is (round all calculations to the nearest dollar):

Group of answer choices

$2,193

$6,839

$91,839

$49,941

Smithson Company is considering a $400,000 capital investment project, with the following cash flows:

Year

Cash Flow

1

$ 80,000

2

190,000

3

    90,000

4

40,000

5

    60,000

6

    40,000

Rounded to the nearest month, what is the cash payback period?

Group of answer choices

4 years.

3 years.

3 years, 7 months.

3 years, 5 months.

Tyson Products LLC wants to buy a new machine and has narrowed its options to two choices. Both machines cost $40,000. The following data shows the expected cash inflows from each machine:

Year

Machine #1

Machine #2

1

$60,000

$20,000

2

0

  20,000

3

0

  20,000

When figuring net present value, the company uses the same cost of capital for both machines and both machines have a positive net present value.

Based on this information, which statement is true?

Group of answer choices

Machine # 1 will have a higher net present value than Machine #2.

Machine # 1 will have a lower net present value than Machine #2.

Machine # 1 and Machine #2 will have the same net present values.

Machine # 1 and Machine #2 will have the same internal rates of return.

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Homework Answers

Answer #1
1
Annual cash flows 23000
X Present Value of an Annuity 3.993
Present value of Annual cash flows 91839
Less: Investment cost 85000
Net present value of the project 6839
$6,839 is correct option
2
Year Cash flows Cumulative Cash flows
0 -400000 -400000
1 80000 -320000
2 190000 -130000
3 90000 -40000
4 40000 0
Cash payback period = 4 years
4 years is correct option
3
Cash flows in earlier year will have a higher present value than cash flows occurring in later years.
Machine #1 has a higher cash flow in earlier year and will have a higher net present value.
Machine # 1 will have a higher net present value than Machine #2.
Option A is correct
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