Chapter 20 - Capital investment decisions

Multiple-choice exercise

Choose the correct answer for each question.




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Information needed to complete the quiz


Chapter 20


 


Questions 2 and 3


Nickey Products Limited is planning to launch a new product range which will
involve investing in new machinery. The project has a four year life span at
the end of which the machinery will be sold off. The company’s directors
are currently considering investing in machine Y. Relevant data about the machine
is as follows:


 
Machine Y
 
£
Initial investment
120 000
Net inflows of cash/profit
Year 1
35 000
Year 2
40 000
Year 3
55 000
Year 4
30 000
Residual value of machinery at end of year 4
40 000



The company’s policy is to depreciatemachinery on a straight line basis
over its estimated useful economic life.




Question 8


Dorian Dalziel Limited is planning an investment project with the following
cash inflows and outflows:


Time Description
£
0 Cash outflow – initial investment
236 000
1 Cash inflow
77 860
2 Cash inflow
103 477
3 Cash outflow – additional investment
28 882
3 Cash inflow
115 700
4 Cash inflow
98 440

The project is not expected to run beyond the end of year 4. The company’s
cost of capital is 12%.