Answered: Delaney Company is considering…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 4P

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Delaney Company is considering replacing equipment that originally cost $600,000 and has accumulated depreciation of $420,000 to date. A new machine will cost $790,000 and the old equipment can be sold for $8,000. The sunk cost in this situation is

a.$290,000

b.$188,000

c.$180,000

d.$172,000

The amount of the average investment for a proposed investment of $201,000 in a fixed asset with a useful life of 4 years, straight-line depreciation, no residual value, and an expected total income of $25,500 for the 4 years is

a.$100,500

b.$6,375

c.$50,250

d.$25,500

The _____ method of analyzing capital investment proposals divides the estimated average annual income by the average investment.

a.internal rate of return

b.net present value

c.average rate of return

d.cash payback

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