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

question 16

Multiple Choice

The management of Wyoming Corporation is considering the purchase of a new machine costing $375,000. The company's desired rate of return is 6%. The present value factor for an annuity of $1 at interest of 6% for five years is 4.212. In addition to the foregoing information, use the following data in determining the acceptability of this investment:
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-The present value index for this investment is

• A) 1.00
• B) 0.95
• C) 1.25
• D) 1.05

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Definitions:

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations with its current assets, calculated as current assets divided by current liabilities.

Acid-test Ratio

A strict measure used to assess if a company possesses sufficient current assets to pay off its short-term obligations without the need to liquidate its stock.

Times Interest

A metric that evaluates a firm's capability to handle its debt responsibilities using its present earnings.

Equity Multiplier

A financial ratio that measures a company's use of debt financing by comparing total assets to shareholders' equity.