Question 1

A project has an initial cost of $1,900. The cash inflows are $0, $500, $900, and $700 over the next four years, respectively. What is the payback period?

Accepted Answer

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Question 2

You are considering a project with an initial cost of $4,300. What is the payback period for this project if the cash inflows are $550, $970, $2,600, and $500 a year over the next four years, respectively?

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Question 3

Project A and B have 4 year timelines. Project A has an initial investment of $100,000 and cash inflows of $60,000, $50,000 $40,000 and $40,000. Project B has an initial investment of $75,000 and cash inflows of $50,000, $40,000, $30,000 and $30,000. At what rate of interest would a company be indifferent at choosing project A or B?

Accepted Answer

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Question 4

Suppose a project costs $300 and produces cash flows of $100 over each of the following six years. What is the IRR of the project?

Accepted Answer

The IRR is the discount rate that makes the net present value (NPV) of the cash flows equal to zero. For this project, the IRR is approximately 24.3%.

Question 5

Project A and B have 4 year timelines. Project A has an initial investment of $120,000 and cash inflows of $50,000, $50,000 $30,000 and $30,000. Project B has an initial investment of $190,000 and cash inflows of $80,000, $70,000, $70,000 and $60,000. At what rate of interest would a company be indifferent at choosing project A or B?

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Question 6

A 25- year project has a cost of $1,500,000 and has annual cash flows of $400,000 in years 1-15, and $200,000 in years 16-25. The company's required rate is 14%. Given this information, calculate the IRR of the project.

Accepted Answer

The IRR is the discount rate that makes the net present value (NPV) of the cash flows equal to zero. Using trial and error or financial calculator, the IRR is approximately 26.22%.

Question 7

ABC Corporation purchased an asset costing $450,000. The asset has an 8 year life, a $50,000 salvage value, and is depreciated on a straight line method. During the past four years, ABC posted net income of $98,000, $112,000, $134,000 and $122,000. Given the following information, calculate the company's average accounting return over the past four years.

Accepted Answer

The average accounting return is calculated by dividing the average net income by the average total assets. The average net income is the sum of the net incomes over the past four years divided by 4, which is (98,000 + 112,000 + 134,000 + 122,000) / 4 = 116,500. The average total assets is the sum of the beginning and ending total assets over the past four years divided by 2. The beginning total assets is the total assets at the beginning of the year, and the ending total assets is the total assets at the end of the year. The total assets at the beginning of the year is not given in the question, so we will assume that it is equal to the total assets at the end of the previous year. The total assets at the end of the year is the total assets at the beginning of the year plus the net income for the year minus the dividends paid for the year. The dividends paid for the year is not given in the question, so we will assume that it is zero. Therefore, the average total assets is [(450,000 + 450,000 + 462,000 + 474,000 + 486,000) / 2] = 464,500. The average accounting return is therefore 116,500 / 464,500 = 0.2509, or 25.09%.

Question 8

Martin is analyzing a project and has gathered the following data. Based on this data, what is the average accounting rate of return? The firm depreciates its assets using straight-line depreciation to a zero book value over the life of the asset.

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Question 9

A four year project that has an initial cost of $60,000. The future cash inflows are $40,000, $30,000, $20,000, and $10,000, respectively. Given this information, what is the IRR for?

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Question 10

The following four-year project has an initial cost of $1,000,000. The future cash inflows for the next four years are $400,000, $300,000, $200,000, and $200,000, respectively. What is the payback period for this project?

Accepted Answer

The payback period is the time it takes for the project to recover its initial investment. After 3 years, the cumulative cash inflow is $900,000 ($400,000 + $300,000 + $200,000). In the fourth year, an additional $100,000 is needed to reach the initial $1,000,000 investment, which takes 0.5 years. Thus, the payback period is 3.5 years.

Question 11

A 50- year project has a cost of $500,000 and has annual cash flows of $100,000 in years 1-25, and $200,000 in years 26-50. The company's required rate is 8%. Given this information, calculate the IRR of the project.

Accepted Answer

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Question 12

Yancy is considering a project which will produce cash inflows of $900 a year for 4 years. The project has a 9 % required rate of return and an initial cost of $2,800. What is the discounted payback period?

Accepted Answer

The discounted payback period is the time it takes for the present value of cash inflows to cover the initial investment. Calculating the present value of each cash inflow using the formula PV = Cash Inflow / (1 + r)^n, where r is the discount rate (9%), and summing these until they equal or exceed the initial cost of $2,800, results in a discounted payback period of approximately 3.82 years.

Question 13

Bill plans to open a do-it-yourself dog bathing center in a storefront. The bathing equipment will cost $160,000. Bill expects the after-tax cash inflows to be $40,000 annually for seven years, after which he plans to scrap the equipment and retire to the beaches of Jamaica.

What is the project's payback period?

Accepted Answer

The payback period is calculated by dividing the initial investment by the annual cash inflow. Here, $160,000 / $40,000 = 4 years.

Question 14

A project has an initial cost of $47,500 and produces cash inflows of $21,200, $24,800, and $21,500 over the next three years, respectively. What is the discounted payback period if the required rate of return is 14 %?

Accepted Answer

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Question 15

You are analyzing a project and have prepared the following data:   Based on the payback period of _____ for this project, you should _____ the project.

Accepted Answer

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Question 16

Floyd Clymer is the CFO of Bonavista Mustang, a manufacturer of parts for classic automobiles. Floyd is considering the purchase of a two-ton press which will allow the firm to stamp out auto fenders. The equipment costs $250,000. The project is expected to produce after-tax cash flows of $60,000 the first year, and increase by $10,000 annually; the after-tax cash flow in year 5 will reach $100,000. Liquidation of the equipment will net the firm $10,000 in cash at the end of five years, making the total cash flow in year five $110,000. What is the payback period for the proposed investment?

Accepted Answer

The payback period is calculated by adding the annual cash flows until the initial investment is recovered. Year 1: $60,000, Year 2: $70,000 (increases by $10,000), Year 3: $80,000, Year 4: $90,000, and Year 5: $100,000 (ignoring the liquidation value for now as it's about reaching the initial investment). By the end of Year 4, the total cash flow is $300,000 ($60,000 + $70,000 + $80,000 + $90,000), which covers the initial investment of $250,000. To find the exact payback period, we see that by the end of Year 3, the total cash flow is $210,000, which is $40,000 short of the initial investment. The cash flow in Year 4 is $90,000. The payback period is 3 years plus the portion of the fourth year needed to cover the remaining $40,000. Since $40,000 is 44.44% of the Year 4 cash flow ($90,000), the payback period is approximately 3.4 years.

Question 17

A project has an initial cost of $72,500. The cash inflows are $11,500, $36,900, $22,900, and $18,200 over the next four years, respectively. What is the payback period?

Accepted Answer

The answer of A project has an initial cost of...

Question 18

What is the IRR of an investment that costs $77,500 and pays $27,500 a year for four years?

Accepted Answer

IRR is the discount rate that makes the NPV of a project equal to zero. In this case, the NPV is:-77,500 + 27,500/(1+IRR)^1 + 27,500/(1+IRR)^2 + 27,500/(1+IRR)^3 + 27,500/(1+IRR)^4 = 0Solving for IRR using a financial calculator or spreadsheet, we get IRR = 16%.

Question 19

You are analyzing a project and have prepared the following data:   Based on the payback period of _____ years for this project, you should _____ the project.

Accepted Answer

The answer of You are analyzing a project and have...

Question 20

A 25- year project has a cost of $1,500,000 and has annual cash flows of $400,000 in years 1-15, and $200,000 in years 16-25. The company's required rate is 14%. Given this information, calculate the payback of the project.

Accepted Answer

The answer of A 25- year project has a cost...

Quiz 9: Net Present Value and Other Investment Criteria

A project has an initial cost of $1,900. The cash inflows are $0, $500, $900, and $700 over the next four years, respectively. What is the payback period?

You are considering a project with an initial cost of $4,300. What is the payback period for this project if the cash inflows are $550, $970, $2,600, and $500 a year over the next four years, respectively?

Suppose a project costs $300 and produces cash flows of $100 over each of the following six years. What is the IRR of the project?

A 25- year project has a cost of $1,500,000 and has annual cash flows of $400,000 in years 1-15, and $200,000 in years 16-25. The company's required rate is 14%. Given this information, calculate the IRR of the project.

Martin is analyzing a project and has gathered the following data. Based on this data, what is the average accounting rate of return? The firm depreciates its assets using straight-line depreciation to a zero book value over the life of the asset.

A four year project that has an initial cost of $60,000. The future cash inflows are $40,000, $30,000, $20,000, and $10,000, respectively. Given this information, what is the IRR for?

The following four-year project has an initial cost of $1,000,000. The future cash inflows for the next four years are $400,000, $300,000, $200,000, and $200,000, respectively. What is the payback period for this project?

A 50- year project has a cost of $500,000 and has annual cash flows of $100,000 in years 1-25, and $200,000 in years 26-50. The company's required rate is 8%. Given this information, calculate the IRR of the project.

Yancy is considering a project which will produce cash inflows of $900 a year for 4 years. The project has a 9 % required rate of return and an initial cost of $2,800. What is the discounted payback period?

A project has an initial cost of $47,500 and produces cash inflows of $21,200, $24,800, and $21,500 over the next three years, respectively. What is the discounted payback period if the required rate of return is 14 %?

You are analyzing a project and have prepared the following data: Based on the payback period of _ for this project, you should _ the project.

A project has an initial cost of $72,500. The cash inflows are $11,500, $36,900, $22,900, and $18,200 over the next four years, respectively. What is the payback period?

What is the IRR of an investment that costs $77,500 and pays $27,500 a year for four years?

You are analyzing a project and have prepared the following data: Based on the payback period of _ years for this project, you should _ the project.

A 25- year project has a cost of $1,500,000 and has annual cash flows of $400,000 in years 1-15, and $200,000 in years 16-25. The company's required rate is 14%. Given this information, calculate the payback of the project.