Use the Information Below to Answer the Following Question(s)

question 97

Multiple Choice

Use the information below to answer the following question(s) .Hawkeye Cleaners has been considering the purchase of an industrial dry-cleaning machine.The existing machine is operable for three more years and will have a zero disposal price.If the machine is disposed of now, it may be sold for $30,000.The new machine will cost $200,000, an additional cash investment in working capital of $60,000 will be required and will be returned at the end of the project.The machine is expected to last 3 years and has an estimated disposal value at that time of $20,000.The new machine will reduce the average amount of time required to wash clothing and will decrease labour costs.The investment is expected to net $50,000 in additional cash inflows during the year of acquisition and $150,000 each additional year of use.These cash flows will generally occur throughout the year and are recognized at the end of each year.Income taxes are not considered in this problem.
-Which of the following statements about the net present value method is TRUE?

• A)Projects with higher net present values are preferred when all other factors are equal.
• B)Projects with negative NPV are acceptable, if no positive NPV projects are available.
• C)It focuses on operating income.
• D)The origination of cash flows is not important in the analysis.
• E)Acceptable projects are those with the highest discount rate.

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