When is the appropriate time to harvest an asset?

When is the appropriate time to harvest an asset?

A) That point in time where harvesting the asset yields the largest internal rate of return.
B) That point in time where harvesting the asset yields the smallest payback.
C) That point in time where harvesting the asset yields the largest accounting rate of return.
D) That point in time where harvesting the asset yields the largest net present value.

Answer: D

Your firm is evaluating the merits of several different machines. Machine A has a useful life of 5-years, generates an NPV of $53,250, an IRR of 13.6% and an equivalent annual cost of $10,316. Machine B has a useful life of 3-years, an NPV of $61,051, an IRR of 12.5%, and an equivalent annual cost of $9,724. Machine C has a useful life of 4-years, generates an NPV of $55,225, an IRR of 15.2% and an equivalent annual cost of $7,535 Machine D has a useful life of 7-years, generates an NPV of $64,020, an IRR of 11.4% and an equivalent annual cost of $8,885.

Your firm is evaluating the merits of several different machines. Machine A has a useful life of 5-years, generates an NPV of $53,250, an IRR of 13.6% and an equivalent annual cost of $10,316. Machine B has a useful life of 3-years, an NPV of $61,051, an IRR of 12.5%, and an equivalent annual cost of $9,724. Machine C has a useful life of 4-years, generates an NPV of $55,225, an IRR of 15.2% and an equivalent annual cost of $7,535 Machine D has a useful life of 7-years, generates an NPV of $64,020, an IRR of 11.4% and an equivalent annual cost of $8,885.

Which machine should be purchased and why?



A) Machine C, because it has the highest IRR.
B) Machine D, because it has the highest NPV.
C) Machine A, because it has the most positive EAC.
D) Machine B, because it has the shortest useful life.

Answer: C

Which of the following is an example of a fixed cost?

Which of the following is an example of a fixed cost?

A) Cost of equipment purchased for an assembly line to be used in the production of a new product.
B) Assembly costs associated with the production of a new product.
C) Labor costs associated with the production of a new product.
D) Shipping costs associated with the sale of a new product.

Answer: A

Which of the following should not be included in a schedule of cash flows from operations when evaluating a capital project?

Which of the following should not be included in a schedule of cash flows from operations when evaluating a capital project?

A) Fixed costs.
B) Sunk costs.
C) Depreciation and amortization.
D) Variable costs.

Answer: B