QUESTIONS 1 – 3 GO WITH THE FOLLOWING PROBLEM: Builtrite has estimated their cost of capital is 14% and they are considering the purchase of a machine with the following capital budget:
QUESTION 1
- QUESTIONS
1 – 3 GO WITH THE FOLLOWING PROBLEM:
Builtrite has estimated their cost of capital is 14% and they are considering the purchase of a machine with the following capital budget:
| Initial Investment | $62,000 |
| RATFCF Year 1 | $22,000 |
| RATFCF Year 2 | $30,000 |
| RATFCF Year 3 | $38,000 |
What is the machine’s NPV?
| $5,783 | ||
| $6,014 | ||
| $4,824 | ||
| $5,442 |
1 points
QUESTION 2
- What is the Profitability Index (PI) of this machine?
| 1.06 | ||
| 1.19 | ||
| 1.28 | ||
| 1.10 |
1 points
QUESTION 3
- What is the Internal Rate of Return of this machine?
| 20.81% | ||
| 19.19% | ||
| 20.19% | ||
| 19.81% |
1 points
QUESTION 4
- QUESTIONS
4 – 5 GO WITH THE FOLLOWING INFORMATION:
Builtrite is considering purchasing a new machine that would cost $60,000 and the machine would be depreciated (straight line) down to $0 over its five year life. At the end of five years it is believed that the machine could be sold for $15,000. The machine would increase EBDT by $42,000 annually.
Builtrite’s marginal tax rate is 34%.
What the RATFCF’s associated with the purchase of this machine?
| $27,840 | ||
| $33,520 | ||
| $30,780 | ||
| $31,800 |
1 points
QUESTION 5
- What is the TCF associated with the purchase of this machine?
| $5,100 | ||
| $7,500 | ||
| $9,900 | ||
| $0 |
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