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

question 90

Multiple Choice

The management of London Corporation is considering the purchase of a new machine costing $750,000.The company's desired rate of return is 6%.The present value factors for $1 at compound interest of 6% for 1 through 5 years are 0.943, 0.890, 0.840, 0.792, and 0.747, respectively.In addition to this information, use the following data in determining the acceptability in this situation: $$\begin{array} { c c c } \text { Year } & \text { Income from Operations } & \text { Net Cash Flow } \\\hline 1 & \$ 37,500 & \$ 187,500 \\2 & 37,500 & 187,500 \\3 & 37,500 & 187,500 \\4 & 37,500 & 187,500 \\5 & 37,500 & 187,500\end{array}$$ ? The average rate of return for this investment is:

• A) 5%.
• B) 10%.
• C) 25%.
• D) 15%.

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Definitions:

Fleet Wide Gas Mileage

The average fuel efficiency across all vehicles within a defined fleet.

Auto Makers

Auto makers are companies engaged in the design, manufacturing, marketing, and selling of motor vehicles.

Core Inflation Rate

A measure of inflation that excludes volatile items such as food and energy, giving a clearer view of long-term inflation trends.

CPI Basket

A representative collection of goods and services used to calculate the Consumer Price Index.