Explore BrainMass

Explore BrainMass

    Payback Period; Rate of Return; Return on Investment

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Use the following to answer questions 44-45.
    Mackenzie Corporation is evaluating a proposal to invest in a machine costing $60,000. The machine has an estimated useful life of ten years, and an estimated salvage value of $10,000. The machine will increase the company's net income by approximately $7,000 per year. All revenue and expenses other than depreciation will be received and paid in cash.

    44. Refer to the information above. The payback period of the machine is:
    a. Four years
    b. Five years
    c. Six years
    d. Ten years

    45. Refer to the information above. The expected rate of return on average investment of the machine is:
    a. 10%
    b. 17%
    c. 20%
    d. 48%

    46. Scott Corporation has borrowed $40,000 that must be repaid in two years. This $40,000 is to be invested in an eight-year project with an estimated annual net cash flow of $10,000. The payback period for this investment is:
    a. Two years
    b. Four years
    c. Eight years
    d. Indeterminable with the given information

    Use the following to answer questions 47-48.
    Shawnee Labs is considering buying equipment which would enable the company to obtain a four-year research contract. The specialized equipment costs $600,000 and will have no salvage value when the four-year contract period is over. The estimated annual operating results of the project are as follows:
    Revenue $650,000
    Expenses (including straight-line depreciation) (600,000)
    Increase in Net Income $50,000
    All revenue from the contract and all expenses (except depreciation) will be received or paid in cash in the same period as recognized for accounting purposes.

    47. Refer to the information above. The payback period for the investment in equipment is:
    a. 12 years
    b. 3 years
    c. 4 years
    d. 1.2 years

    48. Refer to the information above. The return on average investment for this investment is approximately:
    a. 33 1/3%
    b. 8 1/3%
    c. 66 2/3%
    d. 16 2/3%

    © BrainMass Inc. brainmass.com June 3, 2020, 5:45 pm ad1c9bdddf
    https://brainmass.com/business/payback-period-and-discounted-payback-period/payback-period-rate-of-return-return-on-investment-37156

    Solution Preview

    Use the following to answer questions 44-45.
    Mackenzie Corporation is evaluating a proposal to invest in a machine costing $60,000. The machine has an estimated useful life of ten years, and an estimated salvage value of $10,000. The machine will increase the company's net income by approximately $7,000 per year. All revenue and expenses other than depreciation will be received and paid in cash.

    44. Refer to the information above. The payback period of the machine is:
    a. Four years.
    b. Five years.
    c. Six years.
    d. Ten years.

    Answer: b. Five years.

    Initial investment= $60,000
    Net income= $7,000
    Annual depreciation = (60000-10000)/10= $5,000
    Net cash flow= 7000+5000= $12,000
    Initial investment= $60,000
    Payback ...

    Solution Summary

    Answers to multiple choice questions on Payback Period; Rate of Return; Return on Investment

    $2.19

    ADVERTISEMENT