The Management of Charlton Corporation Is Considering the Purchase of a New

question 114

Multiple Choice

The management of Charlton Corporation is considering the purchase of a new machine costing $380,000. The company's desired rate of return is 6%. The present value factor for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the foregoing information, use the following data in determining the acceptability of this investment: $$\begin{array} { l l l } & \text { Income from } & \text { Net Cash } \\\text { Year } & \text { Operations } & \text { Flow } \\1 & \$ 20,000 & \$ 95,000 \\2 & 20,000 & 95,000 \\3 & 20,000 & 95,000 \\4 & 20,000 & 95,000 \\5 & 20,000 & 95,000\end{array}$$ The cash payback period for this investment is

• A) 4 years
• B) 5 years
• C) 19 years
• D) 3.3 years

---

Definitions:

Income Taxes Payable

A liability on a company's balance sheet representing the amount of taxes owed to governmental authorities that have not yet been paid.

Net Income

The total profit of a company after subtracting all expenses, including taxes, from its total revenues.

IFRS Categories

Classifications under the International Financial Reporting Standards that dictate the presentation and disclosure of financial information in the financial statements.

Cash Flows

The sum of funds being moved in and out of a company, particularly influencing its ability to meet short-term obligations.