Braun3 12 Tif

Managerial Accounting, 3e (Braun/Tietz) Chapter 12 Capital Investment Decisions and the Time Value of Mone 1) Capital investments do not typically require large sums of money. Answer: FALSE iff: 1 L!: 1"#1 E!C: S1"#1 AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts ") &'e process of ma(ing capital investment i nvestment decisions is referred to as capital udgeting. Answer: &%*E iff: 1 L!: 1"#1 E!C: S1"#1 AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts +) Self#c'ec(#in mac'ines at airports are an e,ample of capital assets. Answer: &%*E iff: 1 L!: 1"#1 E!C: E1"#1AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts ) Capital udgeting is done w'en common stoc( is issued. Answer: FALSE iff: 1 L!: 1"#1 E!C: S1"#1 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts /) C'oosing among alternative capital investments is called a post#audit. Answer: FALSE iff: 1 L!: 1"#1 E!C: S1"#1 AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts -) 0ost#audits of capital investments compare actual net cas' inflows to proected net cas' inflows. Answer: &%*E iff: 1 L!: 1"#1 E!C: S1"#1 AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts 2) &'e costs to develop a maor wesite for a company would e considered to e a capital asset if t'ose costs are significant and material 3for e,ample4 t'e costs to develop t'e wesite e,ceed 51664666). Answer: &%*E iff: 1 1 Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

L!: 1"#1 E!C: E1"#1AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts ) &'e cost associated wit' renovating a ware'ouse to e used as a restaurant would e considered to e a capital asset. Answer: &%*E iff: 1 L!: 1"#1 E!C: E1"#1AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts ;) &'e 'ealt' care insurance cost of a company for its assemly#line wor(ers would not e considered to e a capital asset. Answer: &%*E iff: 1 L!: 1"#1 E!C: E1"#1AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts

" Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

16) &'e following are all met'ods of analyalue 3=0>). ) Accounting %ate of %eturn 3A%%). Answer: $ iff: 1 L!: 1"#1 E!C: E1"#1AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts 11) ?'ic' of t'e following items would e considered a capital asset@ A) 0urc'ase of office supplies to e used i nternally over t'e ne,t year $) 0ayment for t'is years advertising campaign C) Construction of a new store uilding ) onation of money to *nited ?ay Answer: C iff: 1 L!: 1"#1 E!C: E1"#1AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts 1") ?'ic' of t'e following is a c'aracteristic of a capital asset@ A) &'e item will e used for a long period of time. $) &'e item involves a significant sum of money. C) =one of t'ese c'aracteristics are correct. ) $ot' A and $ are correct. Answer:  iff: 1 L!: 1"#1 E!C: E1"#1AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts

+ Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

1+) &'e process of c'oosing among different alternative investments due to limited resources is referred to as A) capital investing. $) capital rationing. C) resource rationing. ) resource allocation. Answer: $ iff: 1 L!: 1"#1 E!C: S1"#1 AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts 1) &'e BBBBBBBB capital udgeting met'od uses accrual accounting4 rat'er t'an net cas' flows4 as a asis for calculations. A) A%% $) 0ayac( C) =0> ) 8%% Answer: A iff: 1 L!: 1"#1 E!C: S1"#1/ AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts 1/) %egarding capital rationing decisions for capital assets4 w'ic' of t'e following is true@ A) Companies s'ould always c'oose t'e investment wit' t'e s'ortest payac( period. $) Companies s'ould always c'oose t'e investment wit' t'e 'ig'est =0>. C) Companies s'ould always c'oose t'e investment wit' t'e 'ig'est A%%. ) =one of t'e aove are true. t rue. Answer:  iff: 1 L!: 1"#1 E!C: S1"#1/ AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts

 Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

1-) After a company invests in capital assets4 it will perform a BBBBBBBB in order to compare t'e actual to t'e proected net cas' inflows. A) cas' flow analysis $) pre and post analysis C) post#audit ) post#cas' flow Answer: C iff: 1 L!: 1"#1 E!C: S1"#1 AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts 12) &'e term BBBBBBBB is descried as a formal means of analy
/ Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

1;) &'e term BBBBBBBB is est descried as a stream of equal periodic payments. A) time value of money $) capital udgeting C) annuity ) payac( period Answer: C iff: 1 L!: 1"#1 E!C: S1"#2 AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts "6) &'e term BBBBBBBB is est descried as t'e lengt' of time required to recover t'e cost of an investment. A) time value of money $) payac( period C) capital udgeting ) annuity Answer: $ iff: 1 L!: 1"#1 E!C: E1"#12 AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts "1) &'e accounting rate of return uses non#cas' flow factors i ncluding depreciation in calculating t'e operating income of t'e asset. Answer: &%*E iff: 1 L!: 1"#" E!C: S1"#1/ AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts "") 8nvestments wit' longer payac( periods are more desirale4 all else eing equal. Answer: FALSE iff: 1 L!: 1"#" E!C: E1"#12 AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts

Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

"+) &'e payac( met'od can e used w'en t'e net cas' inflows from a capital investment are unequal. Answer: &%*E iff: 1 L!: 1"#" E!C: E1"#1 AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts ") Capital udgeting predictions must consider factors suc' as c'anging consumer preferences4 competition4 and government regulations. Answer: &%*E iff: 1 L!: 1"#" E!C: S1"#1 AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts "/) &'e accounting rate of return met'od of analy4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment

2 Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

"2) Accrual#ased accounting is not used in determining t'e accounting rate of return. Answer: FALSE iff: 1 L!: 1"#" E!C: S1"#1/ AACS$: %eflective &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment ") &'e payac( met'od primarily focuses on profitaility and not time. Answer: FALSE iff: 1 L!: 1"#" E!C: S1"#1/ AACS$: %eflective &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment ";) !ne advantage of t'e internal rate of return is t'at it considers t'e time value of money. Answer: &%*E iff: 1 L!: 1"#" E!C: S1"#1/ AACS$: %eflective &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment +6) !ne disadvantage of t'e payac( met'od i s t'at it does not consider t'e time value of money. Answer: &%*E iff: 1 L!: 1"#" E!C: S1"#1/ AACS$: %eflective &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment +1) 8f t'e accounting rate of return e,ceeds t'e required accounting rate of return4 A) invest in t'e capital asset. $) do not invest in t'e capital asset. C) only invest if t 'e payac( period is also greater t'an t'e required rate of return. ) only invest if t'e payac( period is also less t'an t'e required rate of return. Answer: A iff: 1 L!: 1"#" E!C: E1"#"6 AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts +") 9ow does depreciation affect t'e calculation of a proects payac( period@ A) epreciation is deducted from t'e annual cas' inflows. $) epreciation is added to t'e t 'e annual cas' inflows. C) epreciation is only deducted if t'e payac( period e,ceeds five years. ) epreciation does not affect t'e payac( calculation. Answer:  iff: 1  Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

L!: 1"#" E!C: E1"#12 AACS$: %eflective &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment ++) 9ow does depreciation affect t'e calculation of a proects accounting rate of return 3A%%)@ A) epreciation is added to t'e annual cas' inflows. $) epreciation is deducted from t'e annual cas' inflows. C) epreciation does not affect A%%. ) epreciation is only deducted if t'e A%% is less t'an t'e minimum required rate of return. Answer: $ iff: 1 L!: 1"#" E!C: E1"#"6 AACS$: %eflective &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment +) ?'ic' of t'e following is used as t'e equations numerator w'en computi ng t'e payac( period for a capital asset wit' equal annual net cas' inflows@ A) E,pected annual cas' inflow $) &otal cas' inflows C) Amount invested ) =et cas' outflow Answer: C iff: 1 L!: 1"#" E!C: E1"#12 AACS$: %eflective &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment

; Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

+/) ?'ic' of t'e following is used as t'e equations numerator w'en computi ng t'e accounting rate of return for a capital asset@ A) Average amount invested in t'e asset $) Average annual operating income from t'e asset C) &otal amount invested in t'e asset ) Average net cas' flows from t'e asset Answer: $ iff: 1 L!: 1"#" E!C: E1"#1; AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment +-) All else eing equal4 a company would c'oose to invest in a capital asset if w'ic' of t'e following is true@ A) 8f t'e payac( period equals t'e amount invested $) 8f t'e e,pected accounting rate of return is less t'an t'e required rate of return C) 8f t'e e,pected accounting rate of return is greater t'an t'e required rate of return ) 8f t'e average amount invested is equal to t'e net cas' inflows Answer: C iff: " L!: 1"#" E!C: E1"#"6 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts +2) &'e formula for calculating t'e accounting rate of return for a capital asset i s A) average annual operating income from assetDamount invested i n asset. $) average annual net cas' inflow from assetDamount invested in asset. C) 3average annual operating income  depreciation e,pense)Damount invested in asset. ) 3average annual cas' inflows # depreciation e,pense)D3amount invested in asset  residual value of asset). Answer: A iff: 1 L!: 1"#" E!C: E1"#1; AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment


+) ome< Corporation is considering two alternative investment proposals wit' t'e following data:

8nvestment *seful life Estimated annual net cas' inflows for  years %esidual value epreciation met'od %equired rate of return

0roposal G 5 /64666  years

0roposal H 5 -4666  years

5 1"/4666 5 64666 Straig't#line 1I

5 24666 5# Straig't#line 16I

9ow long is t'e payac( period for 0roposal G@ A) 16.;6 years $) -.66 years C) -.6 years ) "1."/ years Answer: C E,planation: C) 0ayac( J 8nvestmentDannual cas' flow 5/64666.66D51"/4666.66 J -. years iff: 1 L!: 1"#" E!C: E1"#12 AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment


+;) ome< Corporation is considering two alternative investment proposals wit' t'e following data:




5 1"/4666 5 64666 Straig't#line 1I


9ow long is t'e payac( period for 0roposal H@ A) "1."/ years $) -.66 years C) -.6 years ) 11.26 years Answer: $ E,planation: $) 0ayac( J 8nvestmentDannual cas' flow 5-4666D524666.66 J -.6 years iff: " L!: 1"#" E!C: E1"#12 AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment

1" Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

6) ome< Corporation is considering two alternative investment proposals wit' t'e following data:




5 1"/4666 5 64666 Straig't#line 1I


?'at is t'e accounting rate of return for 0roposal G@ A) ". I $) 1.21 I C) "-.-" I ) ".2;I Answer:  E,planation: ) 3Annual net cas' flow # depreciation)D8nvestment J Accounting rate of of return 351"/4666 # 3/64666 # 6666D))D/64666 351"/4666 # 1614"/6)D/64666 J ".2;I iff: " L!: 1"#" E!C: E1"#1; AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment

1+ Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

1) ome< Corporation is considering two alternative investment proposals wit' t'e following data:




5 1"/4666 5 64666 Straig't#line 1I


?'at is t'e accounting rate of return for 0roposal H@ A) /."I $) .12I C) ";.12I ) 1-.-2I Answer: $ E,planation: $) 3Annual net cas' flow # depreciation)D8nvestment J Accounting rate rate of return 3524666 # 3-4666D))D-4666J 3524666 # /4/66)D-4666 J.12I iff: " L!: 1"#" E!C: E1"#1; AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment

1 Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

") &'e ?arren Company is considering investing in two alternative proects:

8nvestment *seful life 3years) Estimated annual net cas' inflows for useful life %esidual value epreciation met'od %equired rate of return

0roect 1 5664666 / 51664666 5"/4666 Straig't#line 1"I

0roect " 5"/64666 5/4666 51/4666 Straig't#line I

?'at is t'e payac( period for 0roect 1@ A) .66 years $) /./- years C) 1-.66 years ) .; years Answer: A E,planation: A) 0ayac( J 8nvestmentDannual cas' flow flow 5664666D51664666 J  years iff: 1 L!: 1"#" E!C: E1"#12 AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment

1/ Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

+) &'e ?arren Company is considering investing in two alternative proects:




?'at is t'e payac( period for 0roect "@ A) .66 years $) /./- years C) 16.66 years ) 1-.66 years Answer: $ E,planation: $) 0ayac( J 8nvestmentDannual cas' flow 5"/64666D5/4666.66 J /./- years iff: " L!: 1"#" E!C: E1"#12 AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment

1Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

) &'e ?arren Company is considering investing in two alternative proects:




?'at is t'e accounting rate of return for 0roect 1@ A) +.2/I $) -."/I C) 1.I ) "/.66I Answer: $ E,planation: $) 3Annual net cas' flow # depreciation)D8nvestment J Accounting rate rate of return 351664666 # 3664666 # "/4666D/))D664666 351664666 # 2/4666)D664666 J -."/I iff: " L!: 1"#" E!C: E1"#1; AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment


/) &'e ?arren Company is considering investing in two alternative proects:




?'at is t'e accounting rate of return for 0roect "@ A) ++.-2I $) +.66I C) 1.66I ) ".++I Answer:  E,planation: ) 3Annual net cas' flow # depreciation)D8nvestment J Accounting rate of return 35/4666 # 3"/64666 # 1/4666D-))D"/64666J 35/4666 # +;41-2)"/64666 J".++ I iff: " L!: 1"#" E!C: E1"#1; AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment -) %ielin Corporation is adding a new product line t'at will require an investment of 51+4666. &'e product line is estimated to generate cas' inflows of 5"/4666 t'e first year4 5"+4666 t'e second year4 and 514666 eac' year t'ereafter for ten more years. ?'at is t'e payac( period@ A) 2."- years $) /./" years C) 2.66 years ) 2.-2 years Answer: C iff: " L!: 1"#" E!C: E1"#12 AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment

1 Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

2) 0itt Company is evaluating two possile investments in depreciale plant assets. &'e company uses t'e straig't# line met'od of depreciation. &'e following information is availale: Inves nvestm tmeent "

8nitial capital investment Estimated useful life Estimated residual value Estimated annual net cas' inflow For + years %equired rate of return

Inves nvestm tmeent B

511"4/66 / years 5164666

51-64666 / years 51/4666

5"/4666 16I

564666 1"I

9ow long is t'e payac( period for 8nvestment A@ A) ./6 years $) .16 years C) 11."/ years ) ".; years Answer: A E,planation: A) 0ayac( J 8nvestmentDannual cas' flow flow 511"4/66D"/4666 J ./6 years iff: " L!: 1"#" E!C: E1"#1 AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment

1; Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

) 0itt Company is evaluating two possile investments in depreciale plant assets. &'e company uses t'e straig't# line met'od of depreciation. &'e following information is availale: Inves nvestm tmeent "

8nitial capital investment Estimated useful life Estimated residual value Estimated annual net cas' inflow For + years %equired rate of return

Inves nvestm tmeent B

511"4/66 / years 5164666

51-64666 / years 51/4666

5"/4666 16I

564666 1"I

9ow long is t'e payac( period for 8nvestment $@ A) +.-+ years $) .66 years C) ".6 years ) 16.-2 years Answer: $ E,planation: $) 0ayac( J 8nvestmentDannual cas' flow 51-64666D64666 J .66 years iff: " L!: 1"#" E!C: E1"#1 AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment

"6 Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

;) Landrum Corporation is considering investing in speciali
5 -64666 5 ;64666 51164666 5 64666 5 "/4666 5+"/4666

Landrum Corporations required rate of return on investments is 1I. ?'at is t'e accounting rate of return on t'e investment@ A) 2.-6I $) /.-6I C) 1.6I ) .6I Answer: A E,planation: A) 3Annual net cas' flow # depreciation)D8nvestment J Accounting rate of of return 35+"/4666D/ # 3"/64666 # "64666)D/)D5"/64666 35-/4666 # 5-4666)5D"/64666 J 2.-6 I iff: " L!: 1"#" E!C: E1"#1; AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment /6) Cowell Corporation is considering an investment in new equipment costing 51//4666. &'e equipment will e depreciated on a straig't#line asis over a five#year li fe and is e,pected to generate net cas' inflows of 5/4666 t'e first year4 5-/4666 t'e second year4 and 5;64666 every year t'ereafter until t'e fift' year. ?'at is t'e payac( period for t'is investment@ &'e equipment 'as no residual value. A) ".6 years $) +. years C) 1.2" years ) "./6 years Answer:  iff: " L!: 1"#" E!C: E1"#1 AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment


/1) Suppose ?'ole Foods is considering investing in ware'ouse#management software t'at costs 5-6646664 'as 5-64666 residual value and s'ould lead to t o cas' cost savings of 51+64666 per year for it s five#year life. 8n calculating t'e A%%4 w'ic' of t'e following figures s'ould e used as t'e equations denominator@ A) 5-64666 $) 5-664666 C) 51+64666 ) 5"2/4666 Answer: $ E,planation: $) 8nvestment 8nvestment J 5-664666 iff: 1 L!: 1"#" E!C: E1"#1 AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment /") &'e 9anna Company uses straig't#line depreciation and is considering a capital e,penditure for w'ic' t'e following relevant cas' flow data 'ave een estimated: Estimated useful life: + years 8nitial investment: 5/664666 Savings year 1: 5"164666 Savings year ": 51/64666 Savings year +: 5""/4666 %esidual value after + yrs 5 /64666 &otal net inflows during t'e t'e useful life of t'e asset are A) 5-+/4666. $) 5/+/4666. C) 5//4666. ) 5/4666. Answer: C E,planation: C) Savings year 1: 5"164666 Savings year ": 51/64666 Savings year +: 5""/4666 &otal 5//4666 iff: " L!: 1"#" E!C: E1"#12 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment.

"" Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

/+) &'e 9anna Company uses straig't#line depreciation and is considering a capital e,penditure for w'ic' t'e following relevant cas' flow data 'ave een estimated: Estimated useful life: + years 8nitial investment: 5/664666 Savings year 1: 5"164666 Savings year ": 51/64666 Savings year +: 5""/4666 %esidual value after + yrs 5 /64666 &otal operating income from t'e asset over t'e +#year period is A) 5/4666. $) 51/64666. C) 5+/4666. ) 51+/4666. Answer:  iff: " L!: 1"#" E!C: E1"#1; AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment. /) &'e 9anna Company uses straig't#line depreciation and is considering a capital e,penditure for w'ic' t'e following relevant cas' flow data 'ave een estimated: Estimated useful life: + years 8nitial investment: 5/664666 Savings year 1: 5"164666 Savings year ": 51/64666 Savings year +: 5""/4666 %esidual value after + yrs 5 /64666 &'e total depreciation e,pense over t'e life of t'e asset is A) 51/64666. $) 5//64666. C) 5/64666. ) 5//4666. Answer: C E,planation: C) 8nvestment 8nvestment # residual value 5/664666 # /64666 J /64666 iff: " L!: 1"#" E!C: E1"#1 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment. //) &'e 9anna Company uses straig't#line depreciation and is considering a capital e,penditure for w'ic' t'e following relevant cas' flow data 'ave een estimated: Estimated useful life: + years 8nitial investment: 5/664666 Savings year 1: 5"164666 "+ Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

Savings year ": Savings year +: %esidual value after + yrs

51/64666 5""/4666 5 /64666

&'e accounting rate of return is closest t o A) +;.66I. $) ;.66I. C) +6.66I. ) 2.-;I. Answer: $ E,planation: $) 3Annual net cas' flow # depreciation)D8nvestment J Accounting rate of return 3"164666  1/64666  ""/4666) # 3/664666 # /64666)D/664666 3//4666 # /64666)D/664666 J "2.66 ivide y + years J ;.66 I iff: " L!: 1"#" E!C: E1"#"6 AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment

" Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

/-) !Kally epartment Stores is considering two possile e,pansion plans. !ne proposal involves opening / stores in 8ndiana at t'e cost of 514;"64666. *nder t'e ot'er proposal4 t 'e company would focus on entuc(y and open stores at a cost of 5"4/664666. &'e following information is availale:

%equired investment Estimated life Estimated residual value Estimated annual cas' inflows over t'e ne,t 16 years %equired rate of return

8ndia ndiana na prop propos osal al ent entuc uc(y (y prop propos osaal 514;"64666 5"4/664666 16 years 16 years 5/64666 564666 5664666 5/664666 16I 16I

&'e payac( period for t'e entuc(y proposal is closest to A) ./ years. $) -."/ years. C) /.66 years. ) +1."/ years. Answer: C E,planation: C) 8nvestmentDAnnual 8nvestmentDAnnual cas' flows 5"4/664666D/664666 J /.6 yrs iff: " L!: 1"#" E!C: E1"#1 AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment

"/ Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

/2) !Kally epartment Stores is considering two possile e,pansion plans. !ne proposal involves opening / stores in 8ndiana at t'e cost of 514;"64666. *nder t'e ot'er proposal4 t 'e company would focus on entuc(y and open stores at a cost of 5"4/664666. &'e following information is availale:



&'e payac( period for t'e 8ndiana proposal is closest to A) +. years. $) /.6 years. C) . years. ) +. years. Answer: C E,planation: C) 8nvestmentDAnnual 8nvestmentDAnnual cas' flows 514;"64666D664666 J . yrs iff: " L!: 1"#" E!C: E1"#1 AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment

"Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

/) !Kally epartment Stores is considering two possile e,pansion plans. !ne proposal involves opening / stores in 8ndiana at t'e cost of 514;"64666. *nder t'e ot'er proposal4 t 'e company would focus on entuc(y and open stores at a cost of 5"4/664666. &'e following information is availale:



&'e accounting rate of return for t'e entuc(y proposal is closest to A) 16.+"I. $) 11.6;I. C) 16.66I. ) "6.66I. Answer: A E,planation: A) 3Annual net cas' flow # depreciation)D8nvestment J Accounting rate of of return 35/664666 # 3"4/664666 # 64666)D16)D"4/664666 35/664666 # ""4666)D"4/664666 J 16.+"I iff: " L!: 1"#" E!C: E1"#1 AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment


/;) !Kally epartment Stores is considering two possile e,pansion plans. !ne proposal involves opening / stores in 8ndiana at t'e cost of 514;"64666. *nder t'e ot'er proposal4 t 'e company would focus on entuc(y and open stores at a cost of 5"4/664666. &'e following information is availale:


8ndia ndian na pro prop posa osal ent entuc uc(y (y prop propos osaal 514;"64666 5"4/664666 16 years 16 years 5/64666 564666 5664666 5/664666 16I 16I

&'e accounting rate of return for t'e 8ndiana proposal is closest to A) 16.+"I. $) 11.6;I. C) "6.+I. ) 16.+I. Answer: $ E,planation: $) 3Annual net cas' flow # depreciation)D8nvestment J Accounting rate rate of return 35664666 # 314;"64666 # /64666)D16)D14;"64666 35664666 # 124666)D14;"64666 J 11.6;+2/I iff: " L!: 1"#" E!C: E1"#1 AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment -6) %unnin ?ild Family Fun Center oug't new go#(arts for its recreation facility. &'e useful life is - years. &'e go#(arts 'ad a total cost of 5/4166 and will generate 514266 total cas' inflows eac' year for t'e l ife of t'e go#(arts. &'e residual value of t'e go#(arts is 5-/6. &'e payac( period in years is closest to A) +.+. $) +.66. C) ".-". ) ".12. Answer: $ E,planation: $) 8nvestmentDAnnual 8nvestmentDAnnual cas' flows /4166D14266 J +.66 yrs iff: " L!: 1"#" E!C: E1"#12 AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment

" Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

-1) Speedy 0rint S'op oug't a new 'ig'#speed p'oto copier for customers to e ale to ring in t'eir digital pictures to ma(e 'ig'#quality copies. 8ts useful life is - years. &'e copier cost 52426 and will generate annual cas' inflows of 5"41/6. &'e residual value of t'e copier is 514+"6. &'e payac( period in years is closest to A) ."1. $) +.-6. C) ".;;. ) "."+. Answer: $ E,planation: $) 8nvestmentDAnnual 8nvestmentDAnnual cas' flows 52426D"41/6 J +.- yrs iff: " L!: 1"#" E!C: E1"#12 AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment -") $u,ton Corporation is evaluating a capital investment proect w'ic' would require an initial investment of 5"64666 to purc'ase new mac'inery. &'e annual revenues and e,penses generated specifically y t'is proect eac' year during t'e proects nine year li fe would e: Sales >ariale e,penses Contriution margin Fi,ed e,penses: Salaries e,pense %ent e,pense epreciation e,pense &otal fi,ed e,penses !perating income

51/4666 5 +4666 5124666 5 +14666 5 "4666 5 "/4666 5 64666 5 -24666

&'e residual value of t'e mac'inery at t'e end of t'e nine years would e 51/4666. &'e payac( period of t'is potential proect in years would e closest to A) ".-. $) +.-. C) +.1. ) 1.. Answer: A E,planation: A) 8nvestmentDAnnual 8nvestmentDAnnual cas' flows 5"64666 D 3-24666  "/4666) J ".- yrs iff: + L!: 1"#" E!C: E1"#12 AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment -+) Smit' M Cramer4 Computer %epair4 is considering an investment in computer and networ( equipment costing 5"/4666. &'is equipment would allow t'em to offer new programming services to clients. &'e equipment will e depreciated on t'e straig't#line asis over an eig't#year period wit' an estimated residual value of 5-64666. *sing t'e accounting rate of return model4 w'at is t'e minimum average annual operating income t'at must e generated from t'is investment in order to ac'ieve an 11I accounting rate of return@ A) 5-4-66 "; Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

$) 5"14+6 C) 5+142/6 ) 5"24;6 Answer:  E,planation: ) 3Annual net cas' flow # depreciation)D8nvestment J Accounting rate of of return Annual net cas' flowD"/4666 J 11I Annual net cas' flow J 11I N "/4666 J "24;6. iff: + L!: 1"#" E!C: E1"#"6 AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment -) 0ro#Am Audio is a company t'at is contracted to O private events. ue to a recent increase in oo(ings4 0ro# Am is considering t'e purc'ase of anot'er moile O unit. 0ro#Am uses t'e payac( met'od to evaluate its investments. &'e moile O unit will cost 51"46664 'as a useful life of 16 years4 and will generate 5"4666 in net cas' inflows per year. &'e residual value of t'e unit is 514666. ?'at is t'e payac( period for t'e moile O unit@ A) -./6 years $) /./6 years C) -.66 years ) .66 years Answer: C E,planation: C) 8nvestmentDAnnual 8nvestmentDAnnual cas' flows 1"4666 D "4666 J - years iff: " L!: 1"#" E!C: E1"#12 AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment

+6 Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

-/) Spar(y t'e Electrician speciali4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment --) $onneville Kanufacturing is considering an investment t'at would require an initial net investment of 5-/64666. &'e following revenuesDe,penses relate e,clusively to t'e investment: #ales Varia$le e!penses Contri$ution mar%in &i!ed e!penses Salaries e,pense %ent e,pense epreciation e,pense &otal fi,ed e,penses !perating income

5+/64666 564666 5+164666 5"4666 5"64666 564666 54666 5"""4666

&'e investment will 'ave a residual value of 5/64666 at t'e end of its 1/ year useful life. ?'at is t'e payac( period for t'is investment@ A) 1.- years $) +.62 years C) ".;+ years ) ". years Answer:  E,planation: ) 8nvestmentDAnnual 8nvestmentDAnnual cas' flows 5-/64666 D 3"""4666  64666) J ". yrs iff: + L!: 1"#" E!C: E1"#12 AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment


-2) lenary 8nvestment Corporation is analy4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment -) loe Enterprises purc'ased a new mac'ine wit' a total cost of 5+64/6 and a useful life of - years. &'e mac'ine will produce net cas' inflows of 524"/6 over its useful life and 'as a residual value of 5"41"/. ?'at is t'e payac( period for t'e new mac'ine@ A) .; years $) +.;1 years C) ."6 years ) +."/ years Answer: C E,planation: C) 5+64/6 D 524"/6 J ."6 years years iff: " L!: 1"#" E!C: E1"#12 AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment

+" Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

-;) Siesta Kanufacturing 'as as(ed you to evaluate a capital investment proect. &'e proect will require an initial investment of 54666. &'e life of t'e investment is 2 years wit' a residual value of 54666. 8f t'e proect produces net annual cas' inflows of 51-46664 w'at is t'e accounting rate of return@ A) +.;6I $) .//I C) //6.66I ) 1.1I Answer: $ E,planation: $) 354666 # 4666)D2 years years J 51"4666 annual depreciation depreciation e,pense 51-4666 # 51"4666D54666 J .//I iff: " L!: 1"#" E!C: E1"#12 AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment 26) Adul Corporation oug't a new mac'ine4 w'ic' cost 5;646664 'as a useful life of 16 years4 and will generate annual cas' inflows of 5"/4666. &'e residual value of t'e mac'ine is 5/4/66. ?'at is t'e payac( period@ Answer: 5;64666D5"/4666 J +.-6 years years iff: " L!: 1"#" E!C: E1"#12 AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment 21) &'e &ot' Company oug't a new specialty mac'ine t'at cost 51664666 wit' a #year life wit' no residual value. &'e company plans to generate annual cas' inflows of 5+64666 eac' year for  years. Calculate t'e accounting rate of return. Answer: /.66I Calculations: 351664666 # 6)D years J 5"/4666 annual depreciation e,pense 5+64666 # 5"/4666D51664666 J 5/4666D51664666 J /. 66I iff: " L!: 1"#" E!C: E1"#12 AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment

++ Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

2") &'e 9awn Corporation oug't a new mac'ine t'at cost 51/64666 wit' a 16#year life and a residual value of 5"64666. &'e company plans to generate annual cas' inflows of 564666 over 16 years. Calculate C alculate t'e accounting rate of return. Answer: 1.66I Calculations: 351/64666 # 5"64666)D16 years J 51+4666 annual depreciation e,pense 564666 # 51+4666D51/64666 J 5"24666D51/64666 J 1.66I iff: " L!: 1"#" E!C: E1"#12 AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment 2+) Sicily4 8nc..4 is considering investing 5"/64666 in a mac'ine t'at will last  years wit' no residual value. &'e new mac'ine will generate annual operating income of 5//4666 per year for  years. ?'at is t'e accounting rate of return@ Answer: ""I Calculations: 5//4666D5"/64666 J ""I iff: " L!: 1"#" E!C: E1"#"6 AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment 2) $uller Kanufacturing is considering acquiring anot'er facility for a cost of 5-164666. &'e required payac( period is ./ years. Assume annual net cas' inflows are 51/64666 for t'e first two years and 51"/4666 for years years + and . ?'at must t'e inflow e in t'e fift' year to meet t'e ./ year payac( period@ Answer: 51"64666 Calculations: 5+664666  5"/64666  ./G J 5-164666P G J 51"64666 iff: + L!: 1"#" E!C: E1"#"6 AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment

+ Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

2/) !ne dollar to e received in t'e future is wort' m ore t'an one dollar today. Answer: FALSE iff: 1 L!: 1"#+ E!C: S1"#16 AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts 2-) &'e net present value met'od does not incorporate t'e time value of money. Answer: FALSE iff: 1 L!: 1"#+ E!C: S1"#16 AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts 22) &'e principal amount4 t'e interest rate4 and t'e numer of periods are all factors needed to calculate t'e time value of money. Answer: &%*E iff: 1 L!: 1"#+ E!C: S1"#16 AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts 2) Calculating interest on t'e principal and on all t'e interest earned to date is called compound interest. Answer: &%*E iff: 1 L!: 1"#+ E!C: S1"#16 AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts 2;) ?'en computing t'e present value of a future sum4 t'e interest rate must m ust always e e,pressed as an annual rate. Answer: FALSE iff: " L!: 1"#+ E!C: S1"#16 AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts

+/ Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

6) &'e Future >alue of 51 tale is used to calculate 'ow muc' 5166 in 'and today would e wort' in / years. Answer: &%*E iff: 1 L!: 1"#+ E!C: S1"#2 AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts 1) &'e t'ree factors t'at affect t'e ti me value of money are principal4 numer of periods4 and t'e interest rate. Answer: &%*E iff: 1 L!: 1"#+ E!C: S1"#16 AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts ") ?'ic' of t'e following areas does not ma(e significant use of tim e value of money concepts@ A) Capital investment analysis $) Lending and orrowing C) 0ersonal finance planning ) Kar(eting researc' Answer:  iff: " L!: 1"#+ E!C: S1"#16 AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts +) &'e time value of money is e,plained y w'ic' of t'e following@ A) 8nvested money earns income over time. $) Koney is more valuale over time. C) A stream of payments is received over time. ) 8nterest is always compounded over time. Answer: A iff: " L!: 1"#+ E!C: S1"#16 AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts

+Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

) Hour grandfat'er 'as promised to give you 514 666 a year at t'e end of eac' of t'e ne,t four years if you earn Cs or etter in all of your courses eac' year. *sing a discount rate of -I4 w'ic' of t'e following followi ng is correct for determining t'e present value of t'e gift@ A) 0> J 514666 N -I N  $) 0> J 514666 N 30> factor4 i J I4 n J -) C) 0> J 514666 N 3Annuity 0> factor4 i J -I4 n J ) ) 0> J 514666 N 3Annuity F> factor4 i J -I4 n J ) Answer: C iff: " L!: 1"#+ E!C: S1"#16 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts /) Hou 'ave een awarded a sc'olars'ip t'at will pay you 5/66 per semester at t'e end of eac' of t'e ne,t  semesters t'at you earn a 0A of +./ or etter. Hou are a very serious student and you anticipate receiving t'e sc'olars'ip every semester. *sing a discount rate of +I per semester4 w'ic' of t'e following is t'e correct calculation for determining t'e present value of t'e sc'olars'ip@ A) 0> J 5/66 N +I N  $) 0> J 5/66 N 3Annuity 0> factor4 i J +I4 n J ) C) 0> J 5/66 N 3Annuity F> factor4 i J -I4 n J ) ) 0> J 514666 N 30> factor4 i J +I4 n J ) Answer: $ iff: " L!: 1"#+ E!C: S1"#16 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts -) Hou won t'e lottery and 'ave a numer of c'oices as to 'ow to ta(e t'e money. ?'ic' c'oice yields a greater present value@ A) 51"4666 a year at t 'e end of eac' of t'e ne,t - years using a -I discount rate $) 5/+4/66 3lump sum) now using a -I discount rate C) 5;64666 3lump sum) 2 years from now using a -I discount rate ) 5;"4666 3lump sum) 2 years from now using an I discount rate Answer: C iff: " L!: 1"#+ E!C: S1"#2 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts


2) ?'en you graduate from college4 your mot'er plans to give you a gift of 5/64666 to start you on your way. 9owever4 to determine w'at you learned in usiness sc'ool4 your mot'er presents you wit' four options on 'ow to receive t'e gift. ?'ic' of t'e four options presented y your mot'er will yield t'e greatest present value to you@ A) A lump sum of 5/64666 today $) 5"/4666 per year for t'e ne,t " years using a +I discount rate C) A lump sum of 5/64666 after grad sc'ool 3" years) assuming a /I discount rate ) A lump sum of 5/64666 after grad sc'ool 3" years) assuming a +I discount rate Answer: A iff: " L!: 1"#+ E!C: S1"#2 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts ) Hour wealt'y neig'or 'as promised to give you 5"4666 a year at t'e end of eac' of t'e ne,t four years to 'elp wit' college. *sing a discount rate of I4 t'e present value of t'e gift can e stated as A) 0> J 5"4666 30> factor4 i J I4 n J ). $) 0> J 5"4666 N I N /. C) 0> J 5"4666 3Annuity F> factor4 i J I4 n J ). ) 0> J 5"4666 3Annuity 0> factor4 i J I4 n J ). Answer:  iff: " L!: 1"#+ E!C: S1"#16 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts ;) Hour 'ard wor( in college paid off4 quite literally4 and you received a graduate assistants'ip for your K$A program. &'e assistants'ip pays a stipend of 5164666 at t'e end of eac' of t'e ne,t " years. *sing an average discount rate of +I4 t'e future value of your assistants'ip can e calculated y A) 0> J 5164666 N +I N ". $) 0> J 5164666 30> factor4 i J +I4 n J "). C) 0> J 5164666 3Annuity 0> factor4 i J +I4 n J "). ) 0> J 5164666 3Annuity F> factor4 i J +I4 n J "). Answer:  iff: " L!: 1"#+ E!C: S1"#16 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts

+ Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

;6) &'e present value of an investment is affected y w'ic' of t'e following@ A) &'e interest rate $) &'e numer of time periods 3lengt' of t'e investment) C) &'e type of investment 3annuity versus lump sum) ) All of t'e aove Answer:  iff: " L!: 1"#+ E!C: S1"#16 AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts ;1) Hou win t'e lottery and must decide 'ow to ta(e t'e payout. *se an I discount rate. ?'at is t'e present value of 51/4666 a year received at t'e end of eac' of t'e ne,t si, years@ A) 5;4/6 $) 5;64666 C) 524;+ ) 5-;4+/ Answer:  E,planation: ) 0resent value annuity Q I for - yrs J .-"+ N 1/4666 J 5-;4+/ iff: 1 L!: 1"#+ E!C: S1"#2 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts ;") Assuming an interest rate of 16I4 t'e present value of 5/64666 to e received  years from now would e closest to A) 5"+4+/6. $) 5"14"66. C) 51;4+66. ) 51624"66. Answer: A E,planation: A) 0resent value Q 16I for  yrs J .-2 N /64666 J 5"+4+/6 iff: 1 L!: 1"#+ E!C: S1"#2 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts

+; Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

;+) Assuming an interest rate of 16I4 t'e present value of 5114666 received at t 'e end of eac' year for - years would e closest to A) 5-4"6. $) 5--4666. C) 524;6/. ) 542-. Answer: C E,planation: C) 0resent value annuity Q 16I 16I for - yrs yrs J .+// N 114666 J 524;6/ iff: 1 L!: 1"#+ E!C: S1"#2 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts ;) Assuming an interest rate of 16I4 if you invest a lump sum of 5/4666 now4 t'e alance of your investment in 2 years will e closest to A) 51"4;26. $) 5;42/. C) 5"+4+6. ) 5+/4666. Answer: $ E,planation: $) Future value Q 16I for 2 yrs J 1.;; N /666 J ;42/ iff: 1 L!: 1"#+ E!C: S1"#2 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts ;/) 8f you invest 514"66 at t'e end of every year for five years at an interest rate of 16I4 t'e alance of your investment in / years will e closest to A) 514;++. $) 5-4666. C) 524+"-. ) 54/;. Answer: C E,planation: C) Future value annuity Q 16 I for / yrs J -.16/1 -.16/1 N 1"66 J 24+"iff: 1 L!: 1"#+ E!C: S1"#2 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts

6 Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

;-) 8ncome from an apartment uilding you own totals 5"-64666 per year. Hou plan on selling t'e uilding and retiring to France in 1" years. Assuming you can invest t'e income from t'e uilding eac' year at +I4 'ow muc' money will you 'ave on w'ic' to retire@ A) 5+4++6466 $) 546-64-6 C) 5+4-;4;"6 ) 5"4//466 Answer: C E,planation: C) Future value Q +I for 1" yrs J 1.1;" N "-64666 J 5+4-;4;"6 iff: 1 L!: 1"#+ E!C: S1"#2 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts ;2) Hou recently won a contest sponsored y a local radio station. &'e radio station will pay you 5"4/66 at t'e end of eac' of t'e ne,t 1/ years. Assuming an interest rate of +I4 w'at is t'e present value of t'is pri
1 Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

;;) !n a w'im you purc'ased a scratc'#off lottery tic(et at t'e gas station. 8t must 'ave een your luc(y day ecause you won 5146664666. $eing logical and rational you decide to invest t'e money at +I for 16 years until you are ready to start a family. At t'e end of 16 years4 'ow muc' will your investment e wort'@ A) 5114-4666 $) 514+4666 C) 524666 ) 514+4666 Answer: $ E,planation: $) Future value Q +I for 16 yrs J 146664666 N 1.+ J 514+4666 iff: 1 L!: 1"#+ E!C: S1"#2 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts 166) Assuming an interest rate of -I4 t'e present value of 5""4666 to e received ; years from now would e closest to A) 51-4+. $) 51+46". C) 5+241-". ) 5+/46-. Answer: $ E,planation: $) 0resent value Q -I for ; yrs J ./;" N ""4666 J 51+46" iff: 1 L!: 1"#+ E!C: S1"#2 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts 161) Assuming an interest rate of -I4 t'e present value of 514666 received at t 'e end of eac' year for - years would e closest to A) 54/6-. $) 5114;26. C) 5164666. ) 51"/4//6. Answer: A E,planation: A) 0resent value annuity Q -I for - yrs J .;12 N 14666 J 54/6iff: 1 L!: 1"#+ E!C: S1"#2 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts

" Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

16") Assuming an interest rate of -I4 if you invest a lump sum of 5-4/66 now4 t'e alance of your investment in 2 years will e closest to A) 5/4/66. $) 5114-". C) 5+-4"+. ) 5;422-. Answer:  E,planation: ) Future value Q -I for for 2 yrs J 1./6 N -4/66 J 5;422iff: 1 L!: 1"#+ E!C: S1"#2 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts 16+) 8f you invest 5/4666 at t'e t 'e end of every year for nine years at an interest rate of -I4 t'e alance of your investment in / years will e closest to A) 5-4-;6. $) 5"41/. C) 5"146-6. ) 5"/4666. Answer: $ E,planation: $) Future value annuity Q -I for / yrs J /.-+2 N /4666 J 5"41/ iff: 1 L!: 1"#+ E!C: S1"#2 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts 16) Hou win t'e lottery and must decide 'ow to ta(e t'e payout. *se an I discount rate for all parts of t'is question. %equired: a. ?'at is t'e t'e present present value value of 51"4666 51"4666 a year year received received at t'e t'e end of eac' of of t'e ne,t ne,t si, years@ years@ . ?'at is t'e present value of ta(ing a 5-64666 lump sum now@ c. ?'at is is t'e present present value value of of a 5;64666 5;64666 lump lump sum ta(en in 2 years@ years@ Answer: a. 351" 351"466 4666 6 N .-" .-"+) +) J 5// 5//4 422 . 5-64666 c. 35;6 35;6466 4666 6 N 6./ 6./+) +) J 5/" 5/"4 426 26 iff: " L!: ;#+ E!C: S1"#2 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts 16/) Solve t'e following two cases 3t'e cases are independent). a. 8f you invest invest 5/4666 5/4666 today at at 16I interest4 interest4 w'at w'at is t'e value of of t'e investment investment at at t'e end of / years years@@ . 8f you invest 514"66 at t'e end of eac' of t'e ne,t / years and t'e investment earns 16I interest4 w'at is t'e value of t'e investment at t'e end of / years@ Answer: a. F> J 5/4 5/466 666 6 N 1.-1 1.-11 1 J 546 546// // . F>A J 514"66 N -.16/ J 524+"iff: " + Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

L!: 1"#+ E!C: S1"#2 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts 16-) &'e A%% allows managers to compare t'e present value of future cas' generated y a proect against t'e cost of investing in t'at proect. Answer: FALSE iff: " L!: 1"# E!C: S1"#11 AACS$: %eflective &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment 162) =et present value and t'e internal i nternal rate of return are e,amples of discounted cas' flow models used in capital udgeting decisions. Answer: &%*E iff: " L!: 1"# E!C: S1"#11 AACS$: %eflective &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment 16) 8n calculating t'e net present value of an investment in equipment4 t'e required investment and its residual value s'ould e sutracted from t'e present value of all future cas' inflows. Answer: FALSE iff: " L!: 1"# E!C: S1"#11 AACS$: %eflective &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment

 Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

16;) &'e profitaility inde, equals t'e present value of net cas' inflows from t'e investment divided y t'e cost of t'e investment. Answer: &%*E iff: 1 L!: 1"# E!C: E1"#"AACS$: %eflective &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment 116) &'e residual value is considered in a net present value computation. Answer: &%*E iff: 1 L!: 1"# E!C: E1"#"AACS$: %eflective &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment 111) A series of equal payments or deposits made at equal time intervals are called compound interest. Answer: FALSE iff: 1 L!: 1"# E!C: E1"#"AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts 11") &'e interest rate t'at ma(es t'e net present value of t'e investment equal to 4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment 11+) &'e internal rate of return is used as t'e discount rate w'en calculating t'e net present value of a proect. Answer: FALSE iff: " L!: 1"# E!C: E1"#"AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts 11) &'e net present value met'od assumes t'at t 'at all cas' inflows are immediately imm ediately reinvested at a rate of return equal to t'e internal rate of return. Answer: FALSE iff: " L!: 1"# E!C: E1"#"AACS$: %eflective &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment 11/) ?'en evaluating capital investment proects4 if t'e internal rate of return is less t'an t'e required rate of return4 t'e proect will e accepted. / Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

Answer: FALSE iff: " L!: 1"# E!C: E1"#"AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts 11-) ?'en selecting a capital investment proect from t'ree alternatives4 t'e proect wit' t'e 'ig'est net present value will always e preferale. Answer: FALSE iff: " L!: 1"# E!C: E1"#"AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts 112) &'e 'urdle rate is t'e lengt' of time it ta(es to recoup an investments initial cost from t'e cas' inflows t'at investment generates. Answer: FALSE iff: " L!: 1"# E!C: E1"#"AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts

Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

11) ?'en evaluating t'e cas' flows from an investment4 a reduction in cas' outflows is treated as t'e same as an increase in cas' inflows. Answer: &%*E iff: " L!: 1"# E!C: E1"#"AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts 11;) ?'en t'e profitaility inde, is less t'an 1.66 for a proect4 t'at proect 'as a positive net present value. Answer: FALSE iff: " L!: 1"# E!C: E1"#"AACS$: %eflective &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment 1"6) ?'at is an attriute of t'e internal rate of return@ A) 8t is t'e interest rate t'at ma(es t'e =0> of t'e investment equal to 4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment 1"1) ?'at would a proects profitaility inde, e if t'e proect 'as an internal rate of return w'ic' is equal to t'e companys discount rate@ A) 8t would e 6./. $) 8t would e 6.6. C) 8t would e 1.6. ) 8t cannot e determined from information i nformation provided Answer: $ iff: " L!: 1"# E!C: E1"#"AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment 1"") ?'at will 'appen to t'e net present value 3=0>) of a proect if t'e discount rate is increased from I to 16I@ A) =0> will always decrease. $) =0> will always increase. C) &'e discount rate c'ange will not affect =0>. ) ?e cannot determine t'e direction of t'e effect on =0> from t'e t 'e information provided. Answer: A iff: 1 L!: 1"# 2 Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

E!C: E1"#"AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment 1"+) ?'at will 'appen to t'e internal rate of return 38%%) of a proect if t'e discount rate is decreased from ;I to 2I@ A) 8%% will always increase. $) &'e discount rate c'ange will not affect 8%%. C) 8%% will always decrease. ) ?e cannot determine t'e direction of t'e effect on 8%% from t'e t 'e information provided. Answer: $ iff: 1 L!: 1"# E!C: E1"#"AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment 1") &'e net present value met'od assumes t'at t 'at t'e cas' inflows from a proect are immediately reinvested at t'e A) internal rate of return. $) accounting rate of return. C) mar(et rate of return. ) required rate of return. Answer:  iff: 1 L!: 1"# E!C: E1"#"AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment

 Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

1"/) A company finds t'at t'e residual value of 54666 for t'e equipment in a capital udgeting proect 'as een inadvertently omitted from t'e calculation of t'e net present value 3=0>) for t'at proect. 9ow does t'is omission affect t'e =0> of t'at proect@ A) &'e proects =0> s'ould e 'ig'er4 ut e less t'an 54666 'ig'er4 wit' t'e residual value included. $) &'e proects =0> s'ould e 54666 'ig'er wit' t'e residual value included. C) &'e proects =0> s'ould e 54666 lower wit' t'e residual value included. ) &'e proects =0> s'ould e lower4 ut e less t'an 54666 lower4 wit' t'e residual value included. Answer: A iff: 1 L!: 1"# E!C: E1"#"AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment 1"-) ?'ic' of t'e following is a wea(ness of t'e internal rate of return 38%%)@ A) 8%% assumes t'at t'e cas' inflows from t'e proect are immediately reinvested at t'e minimum required rate of return. $) 8%% ignores t'e time value of money. C) 8%% assumes t'at t'e cas' inflows i nflows from t'e proect are immediately reinvested at t'e internal rate of return. ) 8%% is not a percentage rate4 ut is e,pressed in dollars. Answer: C iff: 1 L!: 1"# E!C: E1"#"; AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment 1"2) Anot'er name for t'e minimum desired rate of return is A) discount rate. $) required rate of return. C) 'urdle rate. ) All of t'e aove Answer:  iff: " L!: 1"# E!C: E1"#"; AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts

; Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

1") A company would consider all of t'e following in computing t'e 8%% of an investment4 e!cept A) predicted cas' inflows over t'e li fe of t'e proect. $) t'e cost of t'e proect. C) depreciation e,pense on t'e assets of t'e proect. ) present value factors. Answer: C iff: " L!: 1"# E!C: E1"#"; AACS$: %eflective &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment 1";) 30resent value tales are required.) Kantua Kotors is evaluating a capital investment opportunity. &'is proect would require an initial investment of 5+4666 to purc'ase equipment. &'e equipment will 'ave a residual value at t'e end of its life of 5+4666. &'e useful life of t'e equipment is / years. &'e new proect is e,pected to generate additional net cas' inflows of 51"4666 per year for eac' of t'e five years. Kantua Kotors required rate of return is 1I. &'e net present value of t'is proect is closest to A) 3514;;). $) 542/+. C) 5+41;-. ) 5"4+-. Answer: $ E,planation: $) Annual cas' flow 351"4666 N +.++) J 514"1+ %es %esidu idual valu valuee 35+ 35+46 4666 66 N 6./ 6./1; 1;)) J 14/ 14//2 /2 Less investment cost J 3+4666) =et present value 5 42/+ iff: + L!: 1"# E!C: 01"#/; AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts

/6 Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

1+6) 30resent value tales are required.) Kaers( Ketal Stamping is analy) of t'is proect@ A) 5+64+6 $) 54++" C) 5"4/) 5;4/+ Answer:  E,planation: ) Hear3s) Amount Facctor 0resent value 8nitial investment in equipment Additional equipment needed Annual net cas' inflow %esidual value =et present value

=ow

53+64666)

1.666

53+64666)

=ow 1 to  

534666) 5114666 51./66

1.666 ."1" 6.22

534666) 5-4++" 5141"1 5;4/+

iff: + L!: 1"# E!C: 01"#/; AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts 1+1) 30resent value tales are required.) Figgey4 a plastics processor4 is considering t'e purc'ase of a 'ig'#speed e,truder as one option. &'e new e,truder would cost 5/"4666 and would 'ave a residual value of 5/4666 at t'e end of its  year life. &'e annual operating e,penses of t'e new e,truder would e 54666. &'e ot'er option t'at Figgey 'as is to reuild its e,isting e,truder. &'e reuilding would require an investment of 5+64666 and would e,tend t'e life of t'e e,isting e,truder y  years. &'e e,isting e,truder 'as annual operating costs of 5114666 per year and does not 'ave a residual value. Figgey discount rate is 1I. *sing net present value analysis4 w'ic' option is t'e etter option and y 'ow muc'@ A) $etter y 546+ to reuild e,isting e,truder $) $etter y 546+ to purc'ase new e,truder C) $etter y 5-4+" to reuild e,isting e,truder ) $etter y 5-4+" to purc'ase new e,truder Answer: C iff: + L!: 1"# E!C: 01"#/; AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts 1+") 30resent value tales are required.) &'e Speedy#elivery Company 'as two options for its delivery truc(. &'e first option is to purc'ase a new truc( for 51/4666. &'e new truc( will 'ave a useful life of / years and a residual value of 5"4666. !perating costs for t'e new truc( will e 5"66. &'e second option is to over'aul its e,isting truc(. &'e cost of t'e over'aul will e 54666. &'e over'auled truc( will 'ave a useful life of / years and a residual value of 56. !perating costs for t'e over'auled truc( will e 5-66. *sing Speedys discount rate of /I4 w'ic' option is etter and y w'at amount@ A) $etter to over'aul y 5+4266 $) $etter to purc'ase new y 5+4266 /1 Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

C) $etter to over'aul y 5/41 ) $etter to purc'ase new y 5/41 Answer: A E,planation: A)

iff: + L!: 1"# E!C: 01"#/; AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts

/" Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

1++) 30resent value tales are required.) 8nterior 0roducts4 8nc. is evaluating t'e purc'ase of a new mac'ine to use in its manufacturing process. &'e new mac'ine would cost 514666 and 'ave a useful life of - years. At t'e end of t'e mac'ines life4 it would 'ave a residual value of 5"4/66. Annual cost savings from t'e new mac'ine would e 51"466 per year for eac' of t'e si, years of its life. 8nterior 0roducts4 8nc. 'as a minimum required rate of return of 1-I on all new proects. &'e net present value of t'e new mac'ine would e closest to A) 5+4--;. $) 5/421;. C) 54-;. ) 5-421;. Answer: $ E,planation: $) $) Cost of Equipment 5#14666 %esidual value "4/66 0> 1-I - yrs 6.16 146"/ Annual E,pense 1"466 0FA 1-I - yrs +.-/ /4-; &otal /421; iff: + L!: 1"# E!C: 01"#/; AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts 1+) 30resent value tales are required.) ?estin Kanufacturing is considering t'e purc'ase of a new mac'ine to use in its pac(ing department. &'e new mac'ine will 'ave an initial cost of 512646664 a useful life of 1" years and a 5164666 residual value. ?estin will reali) of A) 35"4+-). $) 351/4;+-). C) 351/46-). ) 35""41-). Answer: $

E,planation: $) iff: + L!: 1"# E!C: 01"#/; AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts

/+ Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

1+/) 30resent value tales are required.) Caly Enterprises is evaluating t'e purc'ase of a new computer networ( system. &'e new system would cost 5"/4666 and 'ave a useful life of - years. At t'e end of t'e systems life4 it would 'ave a residual value of 5+4666. 5+4 666. Annual operating cost savings from t'e new system would e 5466 per year for eac' of t'e si, years of its i ts life. Caly Enterprises 'as a minimum required rate of return of 1"I on all new proects. &'e net present value of t'e new networ( system would e closest to A) 5;4-/-. $) 51"4-;. C) 5114122. ) 5+24-;. Answer: $ iff: + L!: 1"# E!C: 01"#/; AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts 1+-) 30resent value tales are required.) arpets 8ndustries is investing in a new 'ig'#speed loom for weaving its rugs and carpets. &'e new loom will 'ave a useful life of 2 years and cost 564666. &'e looms residual value is 5/4666. Assume t'at arpets requires a return of 16I and t'at t'e loom will create annual cost savings of 51-4"/6. ?'at is t'e net present value 3=0>) of t'e new loom@ A) 514-26 $) 35+4-6) C) 514-26 ) 35;/) Answer: A E,planation: A)

iff: + L!: 1"# E!C: 01"#/; AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts

/ Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

1+2) 30resent value tales are required.) %enfroe Corporation is considering t'e purc'ase of a mac'ine t'at would cost 5""421" and would 'ave a useful life of / years. &'e mac'ine would generate 5-4+66 of net annual cas' inflows per year for eac' of t'e / years of its life. &'e internal rate of return on t'e mac'ine would e closest to A) I. $) 16I. C) 1"I. ) 1I. Answer: C E,pl E,plan anat ation ion:: C) Cost Costss 5""42 5""421" 1"D-4 D-4+6 +66 6 net net cas' cas' flo flow w J +.+.-6/ 6/ Closest F>A J R1".66I iff: + L!: 1"# E!C: 01"#/; AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment 1+) 30resent value tales are required.) 9incapie Kanufacturing evaluating investing in a new metal stamping mac'ine costing 5+64;". 9incapie estimates t'at it will realiA for + years J I iff: + L!: 1"# E!C: 01"#/; AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment

// Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

1+;) 30resent value tales are required.) Currence Corporation is considering t'e purc'ase of a special low# molding mac'ine t'at would cost 5/;42/" and would 'ave a useful life of  years. &'e mac'ine would generate 5114"66 of net annual cas' inflows per year for eac' of t'e  years of its it s life. &'e internal rate of return on t'e mac'ine would e closest to A) I. $) 16I. C) 1"I. ) 1I. Answer: $ E,planation: $) Costs 5/;42/"D114"66 net cas' flow J /.++/ Closest F>A J R16.66 I iff: + L!: 1"# E!C: 01"#/ AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment 16) 30resent value tales are required.) >ino ?inery is considering t'e purc'ase of a state#of#t'e#art ottling mac'ine. &'e new mac'ine will cost 5"4"/6 and will 'ave a useful life of 16 years. &'e new mac'ine will provide net cas' savings of 5/4666 per year. ?'at is t'e internal rate of return 38%%) for t'e new ottling mac'ine@ A) I $) 16I C) 1"I ) 1I Answer: C E,planation: C) Costs 5"4"/6D/4666 net cas' flow J /.-/ Closest F>A J R1".66 I iff: + L!: 1"# E!C: 01"#/ AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment

/Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

11) 30resent value tales are required.) Lenardi Corporation is evaluating t 'e purc'ase of a new mac'ine t'at would 'ave an initial cost of 51"/4666. &'is new mac'ine would 'ave a profitaility inde, of 1."/. &'e companys discount rate is 1"I. ?'at is t'e present value of t'e net cas' inflows of t'e new mac'ine proect@ A) 51/4666 $) 51/-4"/6 C) 51664666 ) 514614--2 Answer: $ E,planation: $) Costs 1"/4666 N 1."/ 0rofitaility inde, inde, J 1/-4"/6 iff: + L!: 1"# E!C: 01"#/ AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment 1") Senseman Company 'as t'ree potential proects from w'ic' to c'oose. Selected information on eac' of t'e t'ree proects follows:

8nvestment required =et present value of proect

0roect A 5 "4/66 5 /4266

0roect $ 5 /-4666 5 2/466

0roect C 5 /+4266 5 264"66

*sing t'e profitaility inde,4 ran( t'e proects from most profitale to least profitale. A) A4 $4 C $) C4 $4 A C) $4 A4 C ) $4 C4 A Answer:  iff: + L!: 1"# E!C: 01"#/; AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment

/2 Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

1+) Silver Creations is evaluating a proect t'at would require an initial investment of 5+-4666. &'e present value of t'e net cas' inflows associated wit' t'is proect would e 5+4"66. &'e profitaility inde, for t'is proect would e closest to A) 6.+. $) 1."6. C) 6."6. ) /.66. Answer: $ E,planation: $) =et cas' inflows 5+4"66D+-4666 8nvest. 8nvest. J 1."6 iff: + L!: 1"# E!C: 01"#/; AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment 1) 30resent value tales are needed.) Cleveland Cove Enterprises is evaluating t'e purc'ase of an elaorate 'ydraulic lift system for all of its locations to use for t'e oats roug't in for repair. &'e company 'as narrowed t'eir c'oices down to twot'e $1 Kodel and t'e F/ Kodel. Financial data aout t'e two c'oices follows. B1' Model


5 +"64666  5 264666 5 +64666 Straig't#line 1I

&' Model

5 "64666  5 +/4666 5 164666 Straig't#line 16I

?'at is t'e total present value of future cas' inflows from t'e F/ Kodel@ A) 534-6/) $) 51-42"/ C) 51;14+;/ ) 51-246+/ Answer: C iff: + L!: 1"# E!C: E1"#"1 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment.

/ Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

1/) 30resent value tales are needed.) Cleveland Cove Enterprises is evaluating t'e purc'ase of an elaorate 'ydraulic lift system for all of its locations to use for t'e oats roug't in for repair. &'e company 'as narrowed t'eir c'oices down to two: t'e $1 Kodel and t'e F/ Kodel. Financial data aout t'e two c'oices follows. B1' Model


5 +"64666  5 264666 5 +64666 Straig't#line 1I

&' Model

5 "64666  5 +/4666 5 164666 Straig't#line 16I

?'at is t'e total present value of future cas' inflows from t'e $1 Kodel@ A) 51/4"-6 $) 5++/4"-6 C) 5++4;6 ) 51;14+;/ Answer: $ iff: " L!: 1"# E!C: E1"#"1 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment.

/; Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

1-) 30resent value tales are needed.) Cleveland Cove Enterprises is evaluating t'e purc'ase of an elaorate 'ydraulic lift system for all of its locations to use for t'e oats roug't in for repair. &'e company 'as narrowed t'eir c'oices down to two: t'e $1 Kodel and t'e F/ Kodel. Financial data aout t'e two c'oices follows. B1' Model


5 +"64666  5 264666 5 +64666 Straig't#line 1I

&' Model

5 "64666  5 +/4666 5 164666 Straig't#line 16I

?'at is t'e net present value of t'e F/ Kodel@ A) 51/4"-6 positive $) 54-6/ negative C) 51;14+;/ positive ) 51/-4+;/ positive Answer: $ iff: " L!: 1"# E!C: E1"#"1 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment.

-6 Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

12) 30resent value tales are needed.) Cleveland Cove Enterprises is evaluating t'e purc'ase of an elaorate 'ydraulic lift system for all of its locations to use for t'e oats roug't in for repair. &'e company 'as narrowed t'eir c'oices down to two: t'e $1 Kodel and t'e F/ Kodel. Financial data aout t'e two c'oices follows. B1' Model


5 +"64666  5 264666 5 +64666 Straig't#line 1I

&' Model

5 "64666  5 +/4666 5 164666 Straig't#line 16I

?'at is t'e net present value of t'e $1 Kodel@ A) 51/4"-6 positive $) 54-6/ negative C) 5/466 negative ) 5++/4"-6 positive Answer: A iff: " L!: 1"# E!C: E1"#"1 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment.


1) 30resent value tales are needed.) Cleveland Cove Enterprises is evaluating t'e purc'ase of an elaorate 'ydraulic lift system for all of its locations to use for t'e oats roug't in for repair. &'e company 'as narrowed t'eir c'oices down to two: t'e $1 Kodel and t'e F/ Kodel. Financial data aout t'e two c'oices follows. B1' Model


5 +"64666  5 264666 5 +64666 Straig't#line 1I

&' Model

5 "64666  5 +/4666 5 164666 Straig't#line 16I

*sing t'e net present value model4 w'ic' alternative s'ould t'e company select@ A) =eit'er investment s'ould e selected. $) &'e F/ Kodel s'ould e selected. C) $ot' investments s'ould e selected. ) &'e $1 Kodel s'ould e selected. Answer:  iff: " L!: 1"# E!C: E1"#"1 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment.

-" Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

1;) 30resent value tales are needed.) &'e Oanus >ending Kac'ine Company is loo(ing to e,pand its usiness y adding a new line of vending mac'ines. &'e management team is considering e,panding into eit'er soda mac'ines or snac( mac'ines. Following is t'e relevant financial data relating to t'e decision:


Soda Kac'ines Snac( Kac'ines 52/4666 5/64666 / 16 5+64666 514666 5+64666 5164666 straig't#line straig't#line I 1"I

?'at is t'e present value of all future cas' inflows from t'e snac( mac'ines@ A) 51614266 $) 5164;"6 C) 52/46; ) 5/4;"6 Answer: $ E,planation: $) Estimated annual net cas' inflows for useful life 0resent value of an annuity factor Cas' flow present value %esidual value

514666 51614266 5164666

0resent value of 51 factor %esidual value present value Cas' flow present value

5+4""6 5164666

%esidual value present value 0resent value of future cas' inflows from Snac( Kac'ine iff: + L!: 1"# E!C: E1"#"1 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment.

-+ Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

1/6) 30resent value tales are needed.) &'e Oanus >ending Kac'ine Company is loo(ing to e,pand its usiness y adding a new line of vending mac'ines. &'e management team is considering e,panding into eit'er soda mac'ines or snac( mac'ines. Following is t'e relevant financial data relating to t'e decision:



?'at is t'e total present value of future cas' inflows from t'e soda mac'ines@ A) 51;4;+6 $) 5164;"6 C) 5-"4""6 ) 5164""6 Answer:  E,planation: ) Estimated annual net cas' inflows for useful life 5+64666 0resent value of an annuity factor +.;;+ Cas' flow present value 511;42;6 %esidual value 0resent value of 51 factor %esidual value present value Cas' flow present value %esidual value present value 0resent value of future cas' inflows from Soda mac'ine

5+64666 6.-1 5"64+6 511;42;6 5"64+6 5164""6

iff: " L!: 1"# E!C: E1"#"1 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment.

- Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

1/1) 30resent value tales are needed.) &'e Oanus >ending Kac'ine Company is loo(ing to e,pand its usiness y adding a new line of vending mac'ines. &'e management team is considering e,panding into eit'er soda mac'ines or snac( mac'ines. Following is t'e relevant financial data relating to t'e decision:



?'at is t'e net present value for t'e snac( mac'ines@ A) 53-/4""6) $) 5164;"6 C) 5/4;"6 ) 5-4;"6 Answer: C E,planation: C) Estimated annual net cas' inflows for useful life 0resent value of an annuity factor Cas' flow present value %esidual value

514666 51614266 5164666

0resent value of 51 factor %esidual value present value

5+4""6

Cas' flow present value %esidual value present value

51614266 5+4""6

8nvestment =et present value for Snac( Kac'ine iff: " L!: 1"# E!C: E1"#"1 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment.

-/ Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

1/") 30resent value tales are needed.) &'e Oanus >ending Kac'ine Company is loo(ing to e,pand its usiness y adding a new line of vending mac'ines. &'e management team is considering e,panding into eit'er soda mac'ines or snac( mac'ines. Following is t'e relevant financial data relating to t'e decision:

8nvestment *seful life 3years) Estimated annual net cas' inflows for useful life %esidual value epreciation met'od %equired rate of return ?'at is t'e net present value for t'e soda mac'ines@ A) 53164""6) $) 5"4+-6 C) 5-/4""6 ) 5/4;"6 Answer: C E,planation: C) Estimated annual net cas' inflows for useful life 0resent value of an annuity factor Cas' flow present value


5+64666 511;42;6

%esidual value

5+64666

0resent value of 51 factor %esidual value present value

5"64+6

Cas' flow present value %esidual value present value

511;42;6 5"64+6

8nvestment =et present value for Soda Kac'ine iff: " L!: 1"# E!C: E1"#"1 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment.

-Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

1/+) 30resent value tales are needed.) &'e Oanus >ending Kac'ine Company is loo(ing to e,pand its usiness y adding a new line of vending mac'ines. &'e management team is considering e,panding into eit'er soda mac'ines or snac( mac'ines. Following is t'e relevant financial data relating to t'e decision:



*sing t'e net present value model4 m odel4 w'ic' alternative s'ould Oanus >ending Kac'ine Company select@ A) &'e snac( mac'ines s'ould e selected. $) &'e soda mac'ines s'ould e selected. C) $ot' investments s'ould e selected. ) =eit'er investment s'ould e selected. Answer: $ E,planation: $) ecision %ule: =0> Soda 3-/4""6) R =0> snac( 3/4;"6) iff: " L!: 1"# E!C: E1"#"1 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment.


1/) 30resent value tales are needed.) Somerville Corporation is considering investing in speciali
5 "/64666 5 1;64666 5 1/"4666 5 11"4666 5 ;/4666 5 2;;4666

Somerville Corporations required rate of return is 1I. &'e net present value of t'e investment is closest to A) 5-"4;2- negative. $) 5/4- negative. C) 5+4+1 negative. ) 5114666 positive. Answer: $ iff: " L!: 1"# E!C: E1"#" AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment.

- Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

1//) 30resent value tales are needed.) Somerville Corporation is considering investing in speciali
5 "/64666 5 1;64666 5 1/"4666 5 11"4666 5 ;/4666 5 2;;4666

Somerville Corporations required rate of return is 1I. 8s t'e internal rate of return of t'e investment equal to4 'ig'er t'an4 or lower t'an 1I@ A) Equal to 1I $) 9ig'er t'an 1I C) Lower t'an 1I ) Cannot e determined from t'e given data Answer: C iff: " L!: 1"# E!C: E1"#" AACS$: Analytical &'in(ing Learning !utcome: Calculate t'e =0>4 internal rate of return4 return4 payac( period4 and accounting accounting rate of return and use use to evaluate a potential investment

-; Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

1/-) 30resent value tales are needed.) Kul'eim Corporation is deciding w'et'er to automate one p'ase of its it s production process. &'e equipment 'as a si,#year life and will cost 5164666. 0roected net cas' inflows from t'e equipment are as follows: Hear 1 Hear " Hear + Hear  Hear / Hear -

5 1"64666 5 1664666 5 1164666 5 1664666 5 ;/4666 5 ;64666

Kul'eim Corporations 'urdle rate is 1"I. Assume t'e residual value is 4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment.


1/2) 30resent value tales are needed.) Kul'eim Corporation is deciding w'et'er to automate one p'ase of its it s production process. &'e equipment 'as a si,#year life and will cost 5164666. 0roected net cas' inflows from t'e equipment are as follows: Hear 1

5 1"64666 5 1664666 5 1164666 5 1664666 5 ;/4666 5 ;64666

Hear " Hear + Hear  Hear / Hear -

Kul'eim Corporations 'urdle rate is 1"I. 8f Kul'eim Corporation decides to refuris' t'e equipment at a cost of 5-64666 at t'e end of year -4 it could e used for one more year and would 'ave a 5+64666 residual value at t'e end of year 2. Assume t'e cas' inflow in year 2 is 5-/4666. ?'at is t'e =0> of ust t'e refuris'ment@ A) 351466) $) 51"4/"6 C) 51/4"6 ) 5-4"6 Answer: $ E,planation: $) 8nvestment 3end year -) 5 -64666 0resent value of 514 nJ- rJ1"I 6./62 0resent value of investment # Hear 5 +64"6 Cas' inflow # Hear 2 0resent value of 514 nJ2 rJ1"I 0resent value cas' flows # Hear 2

5 -/4666 6./" 5 ";4+6

%esidual value # Hear 2 0resent value of 514 nJ2 rJ1"I 0resent value of residual value # Hear 2

5 +64666 6./" 5 1+4/-6

0resent value of investment # Hear 0resent value cas' flows # Hear 2 0resent value of residual value # Hear 2 =et present value of refuris'ment

5 3+64"6) 5 ";4+6 5 1+4/-6 5 1"4/"6

iff: + L!: 1"# E!C: E1"#" AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment. 1/) 30resent value tales are needed.) !Kally epartment S tores is considering two possile e,pansion plans. !ne proposal involves opening / stores in 8ndiana at t'e cost of 514;"64666. *nder t'e ot'er proposal4 t'e company would focus on entuc(y and open - stores at a cost of 5"4/664666. &'e following information is availale: 21 Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all


8ndiana pr proposal entuc tuc(y proposal 514;"64666 5"4/664666 16 years 16 years 5/64666 564666 5664666 5/664666 16I 16I

&'e net present value of t'e 8ndiana proposal is closest to A) 5/+4666. $) 5//24+66. C) 5-14-/6. ) 514121466. Answer: $ E,planation: $) Cas Cas' flo flow w 566 56646 4666 66 N 30> 30>A A 16y 16yrr Q 16I 16I) -.1 -.1/ / J "4 "4/ /466 4666 6 %esidual /64666 N 30> 16 yr Q 16I) .+- J 1;4+66 Less Cost #14;"64666 =0> //24+66 iff: " L!: 1"# E!C: E1"#"AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment.

2" Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

1/;) 30resent value tales are needed.) !Kally epartment S tores is considering two possile e,pansion plans. !ne proposal involves opening / stores in 8ndiana at t'e cost of 514;"64666. *nder t'e ot'er proposal4 t'e company would focus on entuc(y and open - stores at a cost of 5"4/664666. &'e following information is availale:


8ndiana pr proposal entuc tuc(y proposal 514;"64666 5"4/664666 16 years 16 years 5/64666 564666 5664666 5/664666 16I 16I

&'e net present value of t'e entuc(y proposal is closest to A) 5//24+66. $) 5/2"4/66. C) 5-6+4+6. ) 5-4-66. Answer: C E,planation: C) Cas Cas' flo flow w 5/66 5/6646 4666 66 N 30> 30>A A 16y 16yrr Q 16I 16I) -.1 -.1/ / J +46 +462 2"4/6 "4/66 6 %esidual 64666 N 30> 16 yr Q 16I) .+- J +646 Less Cost #"4/664666 =0> -6+4+6 iff: " L!: 1"# E!C: E1"#"AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment.

2+ Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

1-6) 30resent value tales are needed.) Family Fun 0ar( is evaluating t'e purc'ase of a new game to e located on its Kidway. Family Fun 'as narrowed t'eir c'oices down to two: t'e ?ac(y ?ater %ace game and t'e ?'ac(#A# Kole game. Financial data aout t'e two c'oices follows.

8nvestment *seful life Estimated annual net cas' inflows for / years %esidual value epreciation met'od %equired rate of return

?ac(y ?ater %ace 5 +"4666 / 5 4666 5 "4666 straig't#line I

?'ac(#A# Kole 5 ""4666 / 5 -4666 5 14666 straig't#line 16I

?'at is t'e total present value of future cas' inflows from t'e ?'ac(#A#Kole game@ A) 5""42$) 5"4/2; C) 5"+4+-2 ) 5/4+-2 Answer: C E,planation: C) Cas' fl flow 5 -46 -466 66 N 30>A /y /yr Q 16I) +. +.2;1 J ""42 42%esidual 14666 N 30> / yr Q 16I) .-"1 J -"1 &otal "+4+-2 iff: + L!: 1"# E!C: E1"#"AACS$: Analytical &'in(ing Learning !utcome: iscuss standard costing and and variance analysis. iscuss and and calculate direct material4 direct laor and over'ead variances.

2 Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

1-1) 30resent value tales are needed.) Family Fun 0ar( is evaluating t'e purc'ase of a new game to e located on its Kidway. Family Fun 'as narrowed t'eir c'oices down to two: t'e ?ac(y ?ater %ace game and t'e ?'ac(#A# Kole game. Financial data aout t'e two c'oices follows.




?'at is t'e total present value of future cas' inflows from t'e ?ac(y ?ater %ace game@ A) 514+6$) 5"+4+-2 C) 5++4+6) 5+14-;6 Answer: C E,planation: C) Cas' flow 5 466 4666 , 30>A /y /yr Q I) +.; +.;; ;+ J +14; 4; %esidual "4666 , 30> / yr Q I) .-1 J 14+-" &otal ++4+6iff: " L!: 1"# E!C: E1"#"AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts

2/ Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

1-") 30resent value tales are needed.) Family Fun 0ar( is evaluating t'e purc'ase of a new game to e located on its Kidway. Family Fun 'as narrowed t'eir c'oices down to two: t'e ?ac(y ?ater %ace game and t'e ?'ac(#A# Kole game. Financial data aout t'e two c'oices follows.




?'at is t'e net present value of t'e ?'ac(#A#Kole game@ A) 514+-2 $) 35/-) C) 5/) 3514+-2) Answer: A E,planation: A) Cas' fl flow 5 -46 -466 66 N 30>A /y /yr Q 16I) +. +.2;1 J ""42 42%esidual 14666 N 30> / yr Q 16I) -"1 J -"1 &otal "+4+-2 Cost #""4666 =0> 14+-2 iff: " L!: 1"# E!C: E1"#"AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment.

2Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

1-+) 30resent value tales are needed.) Family Fun 0ar( is evaluating t'e purc'ase of a new game to e located on its Kidway. Family Fun 'as narrowed t'eir c'oices down to two: t'e ?ac(y ?ater %ace game and t'e ?'ac(#A# Kole game. Financial data aout t'e two c'oices follows.




?'at is t'e net present value of t'e ?ac(y ?ater %ace game@ A) 532-) $) 5314+6-) C) 514+6) 52Answer: C E,planation: C) Cas' flow 5 466 4666 N 30>A /y /yr Q I ) +.;; .;;+ J +14; %esidual "4666 N 30> / yr Q I ) .-1 J 14+-" &otal ++4+6Cost #+"4666 =0> 14+6iff: " L!: 1"# E!C: E1"#"AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment.


1-) 30resent value tales are needed.) Family Fun 0ar( is evaluating t'e purc'ase of a new game to e located on its Kidway. Family Fun 'as narrowed t'eir c'oices down to two: t'e ?ac(y ?ater %ace game and t'e ?'ac(#A# Kole game. Financial data aout t'e two c'oices follows.




*sing t'e net present value model4 m odel4 w'ic' alternative3s) s'ould Family Fun 0ar( select@ A) &'e ?ac(y ?ater %ace game s'ould e selected. $) =eit'er investment s'ould e selected. C) $ot' investments s'ould e selected. ) &'e ?'ac(#A#Kole game s'ould e selected. Answer:  iff: " L!: 1"# E!C: E1"#"AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment. 1-/) 8cy 0ea(s Sports ma(es snowoards. &'e company wants to add a new mac'ine t'at would cost 564666 and 'ave a useful life of / years and no residual value. &'e company e,pects t'e mac'ine will generate 5"4666 annual cas' inflows for / years. &'e discount rate is 16I. ?'at is t'e net present value of t'e investment@ Answer: 35"4666 N +.2;1) # 564666 J 5164; 5164; iff: " L!: 1"# E!C: E1"#"2 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment.

2 Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

1--) Louise owns a golf course and wants to add some computers to t'e t 'e lounge. &'e computers would cost 514666 and would 'ave a + year life l ife and no residual value. Louise e,pects t'e computers to generate 54666 annual cas' inflows for + years. &'e discount rate is I. ?'at is t'e net present value of t'e investment@ Answer: 354666 N "./22) # 14666 J 35+4-;") iff: " L!: 1"# E!C: E1"#"2 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment. 1-2) Spinelli Company is deciding w'et'er to automate one p'ase of its production process. &'e equipment 'as a si, year life and will cost 5/64666. &'e interest rate is i s 1"I. =et cas' inflows per year: Hear 1 Hear " Hear + Hear  Hear / Hear -

5 /4666 5 264666 5 ;/4666 5 2/4666 5 /4666 5 ;-4666

a. ?'at ?'at is t'e t'e presen presentt value value of t'e t'e net net inflow inflow for for year year 1@ 1@ . ?'at is t'e present value of t'e net inflow for year /@ Answer: a. 5/4 5/466 666 6 N .;+ .;+ J 52/4 52/4;6 ;6/ / . 5/4666 N ./-2 J 541;/ iff: + L!: 1"# E!C: E1"#" AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment.

2; Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

1-) 30resent value tales are needed.) eorgia 0eac' Farms is upgrading its fruit was'ingDseparating mac'ine. eorgia 'as narrowed t'e decision down to two mac'ines: Kac'ine A and Kac'ine $.0ertinent $. 0ertinent information for eac' mac'ine follows:


Kac'ine A 5/64666 16 52/4666 5"/4666 straig't#line 16I

Kac'ine $ 5-/64666 16 51"64666 5+/4666 straig't#line 1"I

%equired: a. Calcula Calculate te t'e t'e net net prese present nt value value of of Kac'i Kac'ine ne A. . Calculate t'e net present value of Kac'ine $. c. *sing t'e net net present present value value met'od4 w'ic' w'ic' mac'ine mac'ine s'ould s'ould eorgia eorgia select select if it can select select only one one investment@ investment@ Answer: #*+TI, part aEstimated annual net cas' inflows for useful life 0resent value of an annuity factor Cas' flow present value %esidual value 0resent value of 51 factor %esidual value present value Cas' flow present value %esidual value present value 8nvestment =et present value for Kac'ine A #*+TI, part $Estimated annual net cas' inflows for useful life 0resent value of an annuity factor Cas' flow present value

%esidual value 0resent value of 51 factor %esidual value present value Cas' flow present value %esidual value present value 8nvestment =et present value for Kac'ine $

52/4666 -.1/ 5-642/ 5"/4666 6.+5;4-/6 5-642/ 5;4-/6 53/64666) 5"64/"/

51"64666 /.-/6 5-24666 5+/4666 6.+"" 5114"26 5-24666 5114"26 53-/64666) 5+;4"26

6 Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

#*+TI, part c =0> Kac'ine $ 3+;4"26) R =0> Kac'ine A 3"64/"/)P t'erefore select Kac'ine $. iff: + L!: 1"# E!C: E1"#" AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment.

1-;) 30resent value tales are needed.) S'a(er 8nvestments4 a private i nvestment 'olding company4 is searc'ing for a new investment opportunity. S'a(er 8nvestments 'as identified two potential investment opportunities: an upstart fast food c'ain and a growing organic grocery c'ain. 8nformation for eac' investment follows:


Fast Food C'ain 5;2/4666 1/ 51"64666 5/64666 straig't#line I

!rganic rocery C'ain 514/664666 1/ 5"164666 51664666 straig't#line 16I

%equired: a. Calcul Calculate ate t'e t'e net net presen presentt value value of t'e t'e Fast Fast Food Food C'ain C'ain.. . Calculate t'e net present value of t'e !rganic rocery C'ain. c. *sing t'e net present present value value met'od4 met'od4 w'ic' investmen investmentt s'ould S'a(er S'a(er select select if it can can select only only one investme investment@ nt@


Answer: S!L*&8!= part a. Estimated annual net cas' inflows for useful life 0resent value of an annuity factor Cas' flow present value %esidual value 0resent value of 51 factor %esidual value present value

51"64666 .//; 5146"2466 5/64666 6.+1/ 51/42/6

Cas' flow present value %esidual value present value 8nvestment =et present value for Fast Food C'ain

5146"2466 51/42/6 53;2/4666) 5-24+6

S!L*&8!= part . Estimated annual net cas' inflows for useful life 0resent value of an annuity factor Cas' flow present value

5"164666 2.-6514/;24"-6

%esidual value 0resent value of 51 factor %esidual value present value Cas' flow present value %esidual value present value 8nvestment =et present value for !rganic rocery C'ain

51664666 6."+; 5"+4;66 514/;24"-6 5"+4;66 5314/664666) 51"141-6

S!L*&8!= part c. =0> !rganic rocery 31"141-6) R =0> Fast Food 3-24+6)P t'erefore c'oose !rganic !rganic rocery iff: " L!: 1"# E!C: E1"#"1 AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment.

" Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

126) &'e A%% is t'e only met'od t'at uses accrual accounting figures and t'us ma(ing it important to financial statement users. Answer: &%*E iff: 1 L!: 1"#/ E!C: E1"#+/ AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment. 121) =eit'er t'e payac( period nor t'e 8%% capital udgeting met'od recogni4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment. 12") &'e payac( and accounting rate of return models are conceptually etter t'an t'e discounted cas' flow models ecause t'ey are ased on cas' flows4 and t'ey consider ot' profitaility and t'e time value of money. Answer: FALSE iff: " L!: 1"#/ E!C: E1"#+/ AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment. 12+) &'e net present value model differs from t'e 8%% model in t'at it does =!& s'ow t'e proects unique rate of return. Answer: &%*E iff: " L!: 1"#/ E!C: E1"#+/ AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment.

+ Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

12) &'e discounted cas' flow met'ods for capital udgeting are generally considered inferior to to t'e payac( period and t'e A%% ecause t'ey consider t'e time value of money. Answer: FALSE iff: " L!: 1"#/ E!C: E1"#+/ AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment. 12/) &'e 8nternal %ate of %eturn4 t 'e Accounting %ate of %eturn4 =et 0resent >alue and 0ayac( 0eriod are four recogni4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment. 12-) Capital udgeting met'ods will not wor( wit' unequal cas' flows during t'e capital assets life. !t'er met'ods must e utili
 Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

12) A manager wants to (now w'ic' investment decision will affect t'e ottom line of t'e financial statements according to enerally Accepted Accounting 0rinciples. ?'ic' capital udgeting met'od would 'e c'oose@ A) 0ayac( met'od $) Accounting rate of return met'od C) =et present value met'od ) 0rofitaility inde, Answer: $ iff: 1 L!: 1"#/ E!C: E1"#+/ AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts 12;) A company is evaluating a variety of different capital investment opportunities. ue to limited funds4 t'e company can only c'oose one proect. ?'at would e t'e est capital udgeting met'od for t'is company to use to select a proect@ A) 0ayac( met'od $) Accounting rate of return met'od C) 0rofitaility inde, ) =et present value met'od Answer: C iff: 1 L!: 1"#/ E!C: E1"#+/ AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts 16) &'e BBBBBBBB capital udgeting met'od uses accrual accounting income. A) accounting rate of return $) payac( C) net present value ) internal rate of return Answer: A iff: 1 L!: 1"#/ E!C: E1"#+/ AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts

/ Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

11) ?'ic' of t'e following is not an advantage of post#audits of capital investments@ A) &'ey indicate w'et'er proect s'ould continue or s'ould e aandoned. $) &'ey 'elp managers ma(e etter estimates for future proects. C) &'ey encourage managers to sumit realistic net cas' inflows wit' t'eir proect proposals. ) &'ey 'elp managers to decide w'ic' w'i c' proect s'ould e selected. Answer:  iff: 1 L!: 1"#/ E!C: E1"#+/ AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts 1") &'e BBBBBBBB capital udgeting model considers ot' profitaility and t'e time value of money. A) payac( $) net present value C) accounting rate of return ) $ot' a and c are correct Answer: $ iff: 1 L!: 1"#/ E!C: E1"#+/ AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment. 1+) &'e BBBBBBBB capital udgeting model is generally t'e simplest to compute. A) accounting rate of return $) net present value C) internal rate of return ) payac( Answer:  iff: 1 L!: 1"#/ E!C: E1"#+/ AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment.

Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

1) ?'ic' of t'e capital udgeting met'ods is t'e est@ A) 0ayac( period $) =et present value C) 8nternal rate of return ) =o single met'od is est. Answer:  iff: " L!: 1"#/ E!C: E1"#+/ AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment. 1/) &'e BBBBBBBB capital udgeting met'ods are ased on cas' flows4 profitaility4 and t 'e time value of money. A) payac( and accounting rate of return $) payac( and net present value C) net present value and internal rate of return ) accounting rate of return and internal rate of return Answer: C iff: " L!: 1"#/ E!C: E1"#+/ AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment. 1-) &'e BBBBBBBB is generally considered to e t 'e most superior met'od for ma(ing capital udgeting decisions. A) accounting rate of return met'od $) net present value met'od C) payac( met'od ) incremental met'od Answer: $ iff: " L!: 1"#/ E!C: E1"#+/ AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment.


12) Kanagements minimum desired rate of return on an investment is est descried y w'ic' w'i c' of t'e following terms@ A) 0ayac( return $) 8nternal rate of return C) iscount rate ) =et present value Answer: C iff: 1 L!: 1"#/ E!C: E1"#+/ AACS$: Analytical &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts 1) A measure of profitaility computed  y dividing t'e average annual operating income y t'e amount of t'e investment is est descried y w'ic' of t'e following terms@ A) =et present value $) iscount rate C) 8nternal rate of return ) Accounting rate of return Answer:  iff: 1 L!: 1"#/ E!C: E1"#+/ AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment. 1;) &'e rate of return t'at ma(es m a(es t'e =0> of a capital proect equal to 4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment.

 Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

1;6) &'e decision model t'at computes t'e difference etween t'e present value of t'e investments net cas' inflows4 using a desired rate of return4 and t'e cost of t'e initial investment is est descried y w'ic' of t'e following terms@ A) Accounting rate of return $) iscount rate C) =et present value ) 8nternal rate of return Answer: C iff: 1 L!: 1"#/ E!C: E1"#+/ AACS$: %eflective &'in(ing Learning !utcome: iscuss t'e asics of capital capital investments and illustrate t'e time value of money money concepts. Calculate t'e =0>4 int ernal rate of return4 payac( period4 and accounting rate of return and use to evaluate a potential investment.

; Copyrig't 7 "61+ 0earson Education4 8nc. pulis'ing as 0rentice 9all

Braun3 12 Tif

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