Question 1. In November, the Universal Solutions Division of Keaffaber Corporation had average operating assets of $480,000 and net operating income of $46,200. The company uses residual income, with a minimum required rate of return of 11%, to evaluate the performance of its divisions. What was the Universal Solutions Division's residual income in November?
a. -$6,600
b. $5,082
c. $6,600
d. -$5,082
Question 2. A company has unlimited funds to invest at its discount rate. The company should invest in all projects having:
a. an internal rate of return greater than zero.
b. a net present value greater than zero.
c. a simple rate of return greater than the discount rate.
d. a payback period less than the project's estimated life.
Question 3. A preference decision:
a. is concerned with whether a project clears the minimum required rate of return hurdle.
b. comes before the screening decision.
c. is concerned with determining which of several acceptable alternatives is best.
d. responses A, B, and C are all correct.
Question 4. (Ignore income taxes in this problem.) Nevland Corporation is considering the purchase of a machine that would cost $130,000 and would last for 6 years. At the end of 6 years, the machine would have a salvage value of $18,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $44,000. The company requires a minimum pretax return of 19% on all investment projects. The net present value of the proposed project is closest to:
a. $38,040
b. $26,376
c. $74,902
d. $20,040
Question 5. (Ignore income taxes in this problem) The management of Elamin Corporation is considering the purchase of a machine that would cost $365,695 and would have a useful life of 9 years. The machine would have no salvage value. The machine would reduce labor and other operating costs by $61,000 per year. The internal rate of return on the investment in the new machine is closest to:
a. 9%
b. 11%
c. 12%
d. 10%