Shields Company Has Gathered the Following Data on a Proposed

question 142

Multiple Choice

Shields Company has gathered the following data on a proposed investment project:
$\begin{array}{|l|r|}\hline \text { Investment Required in Equipment } & \$ 400,000 \\\hline \text { Annual Cash Inflows } & \$ 80,000 \\\hline \text { Salvage Value } & \$-0- \\\hline \text { Life of the Investment } & 10 \text { years } \\\hline \text { Discount Rate } & 10 \% \\\hline\end{array}$
(Ignore income taxes in this problem.)
-The simple rate of return on the investment is closest to which of the following?

• A) 5%.
• B) 10%.
• C) 15%.
• D) 20%.

Calculate and analyze cash flow from assets and its components.

Understand the valuation of a business and the factors that contribute to its market value.

Comprehend and apply concepts related to capital gains, dividends, and average tax rates.

Calculate and understand the implications of net capital spending on financial statements.

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Definitions:

Operating Expenses

Costs associated with the day-to-day operations of a business, excluding the cost of goods sold.

Annual Rate Of Return

The percentage of profit or loss on an investment over a one-year period.

Accumulated Depreciation

The total amount of a tangible fixed asset's cost that has been charged to depreciation expense since the asset was acquired.

Salvage Value

The estimated resale value of an asset at the end of its useful life, after depreciation has been taken into account.