Explain the steps on how to solve the problems given below (MCQ's):
1. Smitty Corp, whose required rate of return is 10%, is considering the purchase of a new piece of equipment. The internal rate of return of the project, which has a life of 8 years, is 12%. The project would have
A.an accounting rate of return greater than 10%.
B.a payback period more than 8 years.
C.a net present value of zero.
D.a net present value greater than zero.
2. How much would you need to deposit now in a savings account that earns 5% interest, compounded annually, in order to withdraw $5,000 at the end of every year for ten years?
3. Summit Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $159,600. The equipment will have an initial cost of $532,000 and have a 7 year life. If the salvage value of the equipment is estimated to be $14,000, what is the accounting rate of return?
4.Hiawatha Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $200,000. The equipment will have an initial cost of $900,000 and have a 6 year life. There is no salvage value for the equipment. If the hurdle rate is 8%, what is the approximate net present value? Ignore income taxes.
5. Albertville Inc produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). How much will be paid to skilled labor during the three months July - September?