The Picture Company Is Considering the Purchase of a New

question 8

Multiple Choice

The Picture Company is considering the purchase of a new machine for $68,754.The machine would generate an annual cash flow of $21,000 for five years.At the end of five years,the machine would have no salvage value.The company's cost of capital is 12%.The company uses straight-line depreciation. What is the internal rate of return for the machine (rounded to the nearest percent) ?

• A)12%
• B)14%
• C)16%
• D)18%

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Definitions:

Building Account

An account used to track the costs associated with the construction or improvement of a building until the project is completed and the asset is ready for use.

Adjusted Trial Balances

An internal document that lists all accounts and their balances after adjustments are made for errors, accruals, and deferrals, used for preparing financial statements.

Adjusting Entries

Financial records made upon the completion of an accounting cycle to allocate gains and deductions to the actual period in which they occurred.

Insurance Expired

Indicates the end of an insurance policy's coverage period.