In: Finance
A project earns $10,000 a year for five years. The present total
value of the project is (using a discount rate of 5.75%):
a) $50,000
b) more than $50,000
c) less than $50,000
The NPV of a project is $1,012, using a discount rate of 9.75% p.a. The rate of return on this project is:
a) 9.75%
b) more than 9.75% c) less than 9.75%
The NPV of a project is 0, using a discount rate of 10%. The rate of return on this project is:
a) 10%
b) more than 10%
c) lessthan10%
A machine has a salvage value of $5,000. Using a discount rate of 5% p.a., the present value of the salvage value is:
a) $5,000
b) more than $5,000 c) lessthan$5,000
The capital cost of a project that lasts for five years is
$50,000. Using a discount rate of 2.95%, the annual worth of the
capital cost is:
a) $10,000
b) more than $10,000
c) lessthan$10,000
A machine has a salvage value of $5,000 after five years. Using
a discount rate of 2.95% p.a., the annual worth of the salvage
value is:
a) $1,000
b) more than $1,000
c) lessthan$1,000
The NAW of a project is 0, using a discount rate of 6%. The rate of return on this project is:
a) 6%
b) more than 6%
c) lessthan6%
Answer to Question 1:
“less than $50,000”
Annual Cash Inflow = $10,000
Period = 5 years
Discount Rate = 5.75%
Present Value = $10,000/1.0575 + $10,000/1.0575^2 +
$10,000/1.0575^3 + $10,000/1.0575^4 + $10,000/1.0575^5
Present Value = $10,000 * (1 - (1/1.0575)^5) / 0.0575
Present Value = $10,000 * 4.241167
Present Value = $42,411.67
Answer to Question 2:
“more than 9.75%”
If NPV of a project is greater than zero at discount rate, then
required return is greater than the discount rate.
If NPV of a project is smaller than zero at discount rate, then
required return is less than the discount rate.
If NPV of a project is equal to zero at discount rate, then
required return is equal to the discount rate.
Answer to Question 3:
“10%”
If NPV of a project is greater than zero at discount rate, then
required return is greater than the discount rate.
If NPV of a project is smaller than zero at discount rate, then
required return is less than the discount rate.
If NPV of a project is equal to zero at discount rate, then
required return is equal to the discount rate.
Answer to Question 4:
“less than $5,000”
Salvage Value = $5,000
Present value is always smaller than the future value.