Olsen Inc Purchased a $600,000 Machine to Manufacture a Specialty Tap

question 147

Multiple Choice

Olsen Inc. purchased a $600,000 machine to manufacture a specialty tap for electrical equipment. The tap is in high demand and Olsen can sell all that it could manufacture for the next 10 years. To encourage capital investments, the government exempts taxes on profits from new investments in this type of machinery. This legislation most likely will remain in effect in the foreseeable future. The equipment is expected to have 10 years of useful life and no salvage value at the end of this 10-year period. The firm uses straight-line depreciation. The net cash inflow is expected to be $144,000 each year. Olsen uses a discount rate of 10% in evaluating its capital investments.

The estimated internal rate of return (IRR) on this proposed investment is: (Note: the PV annuity factor from Table 2, Appendix C, 10%, 10 years is 6.145.)

• A) Less than 10%.
• B) 10%.
• C) 12%.
• D) Greater than 12%.
• E) Indeterminable based on the information provided.

Understand the steps and considerations before imposing a hiring freeze following layoffs.

Comprehend the reasons for dismissal related to performance.

Understand the eligibility for unemployment compensation following a discharge.

Identify the roles of management and HR during legal proceedings related to employment termination.

---

Definitions:

Risk-Free Return

The return on an investment with no risk of financial loss, typically associated with government bonds.

Treynor Measure

A performance metric on investment funds that accounts for the risk taken by the investment relative to the market risk as measured by beta.

Risk-Free Return

The theoretical rate of return of an investment with zero risk of financial loss.

Dollar-Weighted Return

A method of calculating an investment's return that takes into account the timing and size of cash flows, providing a more accurate measure of personal investment performance.