Kaplan Gb519 Unit 4 GRADED Quiz

Unit 4 GRADED Quiz

Testbank Exercise 2

140. Marilyn’s parents have agreed to help her purchase a new car upon graduation in four years. They have given her two choices. The first choice is that they will give her $4,000 each year for the next four years for her to invest herself. The second choice is that they will wait four years and give her $18,000. Marilyn can invest the money at a 4% rate.

Required:

a. Which option should Marilyn choose? Why?

b. If Marilyn can invest the money at 8%, which options should she choose? Why?

Testbank Exercise 5

141. General Hospital is planning to add a new diagnostic machine which should improve its quality of certain blood tests. The machine under consideration has a cost of $79,189 and is expected to save the hospital $8,000 each year. The machine has an expected useful life of 14 years.

Required:

a. Calculate the internal rate of return on the diagnostic machine.

b. If the hospital uses a hurdle rate of 6%, should the diagnostic machine be purchased? Why or why not?

Testbank Exercise 6

142. Birch manufacturing is considering the addition of another product line to its offerings. Equipment needed to produce the new line will cost $200,000. Birch estimates that the net cash inflows from the new product line will be as follows:

Years 1-10	$18,000 (each year)
Years 11-15	$5,000 (each year)
Year 16-20	$2,000

Required:

a. What is the payback period for the new product line?

b. If the company can establish a steady customer base before production starts and the cash inflows will be $15,000 per year for years 1 – 15, what will be the payback period?

Problem 8-29

Testbank Exercise 3

Rayburn Industries is evaluating the investment of $140,000 in a new packing machine that should provide annual cash operating inflows of $30,000 for 6 years. At the end of 6 years, the packing machine will be sold for $5,000. Rayburn’s required rate of return is 8%.

Required:

What is the machine’s net present value?

Based on net present value, should Rayburn purchase the new packing machine? Why or Why not?

List two qualitative items that Rayburn should consider in the decision to purchase the new machine.

Unit 9-3, LO3