Question

1).A project requires an initial investment of $973,000. The projects generates cash flows of $250,000 in year 1, $300,000 in year 2, $300,000 in year 3, $400,000 in year 4 and $400,000 in year 5. If the required rate of return for the project is 12 percent, the payback period is ____________ and the discounted payback period is _______________.

A).3.7 years; 4.5 years B).2.8 years; 3.9 years C). 2.8 years; 4.2 years D).3.3 years; 3.9 years E).3.3 years; 4.2 years

2).A project requires an initial investment of $2,640,000. The projects generates cash flows of $750,000 in year 1, $800,000 in year 2, $800,000 in year 3, $800,000 in year 4 and $800,000 in year 5. If the required rate of return for the project is 12 percent, calculate the net present value (NPV) of the project.

A).$231,622 B).$311,852 C).$1,310,000 D).$84,109 E).$199,178

3).Project A requires an initial investment (today) of $560,000 and generates cash flows of $170,000 a year for each of the next four years. Project B requires an investment of $710,000 today and generates cash flows of $220,000 in year 1, $220,000 in year 2, $250,000 in year 3, and $250,000 in year 4. The two projects are mutually exclusive and the required return for each project is 13 percent.

Which of the two projects, if any, should be accepted?

A).Accept both projects B).Accept project A and reject project B C).Reject both projects D).Accept project B and reject project A

Answer 1