# Finance- Builtrite has estimated their cost of capital is 14% and they are considering the purchase

January 31, 2017

Question
QUESTION 1

1. QUESTIONS 1 – 3 GO WITH THE FOLLOWING PROBLEM:

Builtrite has estimated their cost of capital is 14% and they are considering the purchase of a machine with the following capital budget:

Initial Investment

\$62,000

RATFCF Year 1

\$22,000

RATFCF Year 2

\$30,000

RATFCF Year 3

\$38,000

2.
What is the machine’s NPV?

\$5,783

\$6,014

\$4,824

\$5,442

1 points

QUESTION 2

1. What is the Profitability Index (PI) of this machine?

1.06

1.19

1.28

1.10

1 points

QUESTION 3

1. What is the Internal Rate of Return of this machine?

20.81%

19.19%

20.19%

19.81%

1 points

QUESTION 4

1. QUESTIONS 4 – 5 GO WITH THE FOLLOWING INFORMATION:

Builtrite is considering purchasing a new machine that would cost \$60,000 and the machine would be depreciated (straight line) down to \$0 over its five year life. At the end of five years it is believed that the machine could be sold for \$15,000. The machine would increase EBDT by \$42,000 annually.
Builtrite’s marginal tax rate is 34%.

What the RATFCF’s associated with the purchase of this machine?

\$27,840

\$33,520

\$30,780

\$31,800

1 points

QUESTION 5

1. What is the TCF associated with the purchase of this machine?

\$5,100

\$7,500

\$9,900

\$0

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