Question 1
Quick Sale Real
Estate Company is planning to invest in a new development. The cost of the
project will be $23 million and is expected to generate cash flows of
$14,000,000, $11,750,000, and $6,350,000 over the next three years. The
company’s cost of capital is 20 percent. What is the internal rate of return on
this project? (Round to the nearest percent.)
Question 1 options:
20%
24%
22%
28%
Question 2
Muncy, Inc., is looking to add a new machine at a cost of
$4,133,250. The company expects this equipment will lead to cash flows of
$815,322, $863,275, $937,250, $1,017,110, $1,212,960, and $1,225,000 over the
next six years. If the appropriate discount rate is 15 percent, what is the NPV
of this investment?
Your Answer:…………………………..
Question 3
Given the following
cash flows for a capital project, calculate the IRR using a financial
calculator
Year
0 1 2 3 4 5
Cash Flows ($50,467) $12,746 $14,426 $21,548 $8,580 $4,959
Question 3 options:
8.41%
8.05%
8.79%
7.9%
?
Question 4
An investment of $83
generates after-tax cash flows of $48.00 in Year 1, $72.00 in Year 2, and
$129.00 in Year 3. The required rate of return is 20 percent. The net present
value is
Your Answer:……………………………
Question 5
Cortez Art Gallery is
adding to its existing buildings at a cost of $2 million. The gallery expects
to bring in additional cash flows of $520,000, $700,000, and $1,000,000 over
the next three years. Given a required rate of return of 10 percent, what is
the NPV of this project?
Question 5 options:
-$197,446
$1,802,554
$197,446
-$1,802,554
Question 6
Which ONE of the following statements about the payback
method is true?
Question 6 options:
The payback method is consistent with the goal of
shareholder wealth maximization
The payback method represents the number of years it takes a
project to recover its initial investment plus a required rate of return.
There is no economic rational that links the payback method
to shareholder wealth maximization.
None of these statements are true.
?
Question 7
McKenna Sports
Authority is getting ready to produce a new line of gold clubs by investing
$1.85 million. The investment will result in additional cash flows of $525,000,
$837,500, and $1,200,000 over the next three years. What is the payback period
for this project?
Answer…………………….
Question 8
Monroe, Inc., is
evaluating a project. The company uses a 13.8 percent discount rate for this
project. Cost and cash flows are shown in the table. What is the NPV of the
project?
Year
Project
0 ($11,368,000)
1 $ 2,127,590
2 $ 3,787,552
3 $ 3,200,650
4 $ 4,115,899
5 $ 4,556,424
Answer:…………………………
