(Present Value Tables Are Needed - Using the Net Present Value Model,which Alternative Should Miami

question 140

Multiple Choice

(Present value tables are needed.) Miami Marine Enterprises is evaluating the purchase of an elaborate hydraulic lift system for all of its locations to use for the boats brought in for repair.The company has narrowed their choices down to two: the B14 Model and the F54 Model.Financial data about the two choices follows. $\begin{array}{|l|c|c|}\hline& \text { B14 Model } & \text { F54 Model } \\\hline \text { Investment } & \$320,000 & \$ 240,000 \\\hline \text { Useful life (years) } & 8 & 8 \\\hline \text { Estimated annual net cash inflows for useful life } &\$ 75,000 & \$ 40,000 \\\hline \text { Residual value } & \$30,000 & \$ 10,000 \\\hline \text { Depreciation method } & \text { Straight-line } & \text { Straight-line } \\\hline \text { Required rate of return } & 14 \% & 10 \% \\\hline\end{array}$

- Using the net present value model,which alternative should Miami Marine Enterprises select?

• A)The B14 Model should be selected.
• B)The F54 Model should be selected.
• C)Both investments should be selected.
• D)Neither investment should be selected.

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Definitions:

Gross Margin

The difference between revenue and cost of goods sold divided by revenue, expressed as a percentage.

Times Interest Earned

A ratio that measures a company's ability to meet its debt obligations, calculated by dividing earnings before interest and taxes by the interest expense.

Debt-To-Equity Ratio

A financial ratio indicating the relative proportion of shareholder's equity and debt used to finance a company's assets.

Equity Multiplier

A financial leverage ratio that measures the portion of a company`s assets that are financed by its shareholders' equity.