Question

Question 1 (1 point)

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 (1 point)

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, $1,017,612, $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? Round to two decimal places.

Your Answer:

Question 2 options:

Answer

Question 3 (1 point)

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 (1 point)

An investment of $83 generates after-tax cash flows of $40.00 in Year 1, $64.00 in Year 2, and $129.00 in Year 3. The required rate of return is 20 percent. The net present value is

Round to two decimal places.

Your Answer:

Question 4 options:

Answer

Question 5 (1 point)

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 (1 point)

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 (1 point)

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, $847,500, and $1,215,000 over the next three years. What is the payback period for this project? Round to four decimal places.

Your Answer:

Question 7 options:

Answer

Question 8 (1 point)

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 $ 2,157,589

2 $ 3,787,552

3 $  3,125,650

4 $ 4,115,899

5 $ 4,556,424

Round to two decimal places.

Your Answer:

Question 8 options:

Answer

Answer 1

Answer to Question 1:

Cash Flows:
Year 0 = -$23,000,000
Year 1 = $14,000,000
Year 2 = $11,750,000
Year 3 = $6,350,000

Let IRR be i%

NPV = -$23,000,000 + $14,000,000/(1+i) + $11,750,000/(1+i)^2 + $6,350,000/(1+i)^3
0 = -$23,000,000 + $14,000,000/(1+i) + $11,750,000/(1+i)^2 + $6,350,000/(1+i)^3

Using financial calculator, i = 22%

IRR of the project is 22%

Answer to Question 2:

Cash Flows:
Year 0 = -$4,133,250
Year 1 = $815,322
Year 2 = $863,275
Year 3 = $937,250
Year 4 = $1,017,612
Year 5 = $1,212,960
Year 6 = $1,225,000

Discount Rate = 15%

NPV = -$4,133,250 + $815,322/1.15 + $863,275/1.15^2 + $937,250/1.15^3 + $1,017,612/1.15^4 + $1,212,960/1.15^5 + $1,225,000/1.15^6
NPV = -$440,777.57

Answer to Question 3:

Cash Flows:
Year 0 = -$50,467
Year 1 = $12,746
Year 2 = $14,426
Year 3 = $21,548
Year 4 = $8,580
Year 5 = $4,959

Let IRR be i%

NPV = -$50,467 + $12,746/(1+i) + $14,426/(1+i)^2 + $21,548/(1+i)^3 + $8,580/(1+i)^4 + $4,959/(1+i)^5
0 = -$50,467 + $12,746/(1+i) + $14,426/(1+i)^2 + $21,548/(1+i)^3 + $8,580/(1+i)^4 + $4,959/(1+i)^5

Using financial calculator, i = 8.41%

IRR of the project is 8.41%

Answer to Question 4:

Cash Flows:
Year 0 = -$83
Year 1 = $40
Year 2 = $64
Year 3 = $129

Discount Rate = 20%

NPV = -$83 + $40/1.20 + $64/1.20^2 + $129/1.20^3
NPV = $69.43