Question

Suppose your firm is considering investing in a project with the cash flows shown below. The required rate of return is 8%. What is the Net Present Value (NPV) of the project? Should the project be accepted or rejected based on the NPV criteria? Choose 1,2,3, or 4

Year	0	1	2	3	4	5
Cash Flow	$ -96,000	$ 24,800	$ 42,300	$ 31,500	$ 11,900	$33,700

1 - NPV = $19,916.62, accept the project since NPV > 0;

2 - NPV = $19,916.62, reject the project since NPV < initial cost of $96,000;

3 - NPV = $116,916.62, reject the project since NPV > initial cost of $96,000;

4 - NPV = $115,916.62, accept the project since NPV > 0.

Refering to the above question, what is the Internal Rate of Return (IRR)? Should the project be accepted or rejected based on the IRR criteria? Choose 1,2,3, or 4

1 - 15.82% , accept the project since IRR > the discount rate;

2 - 15.82%, reject the project since IRR > the discount rate;

3 - 7.91%, accept the project since IRR < the discount rate;

4 - 7.91%, reject the project since IRR < the discount rate.

Refering to the above question, assume the maximum allowable Discounted Payback (DPB) period is 4 years. What is the discount payback period? Should the project be accepted or rejected based on the DPB criteria? Choose 1,2,3, or 4

1 - 4.13 years, reject the project since DPB > 4 years

2 - 4.13 years, accept the project since DPB > 4 years

3 - 4.87 years, reject the project since DPB > 4 years

4 - 4.87 years, accept the project since DPB > 4 years

Answer 1

1-
Year	cash flow	present value of cash flow = cash flow/(1+r)^n r = 8%
0	-96000	-96000
1	24800	22962.96296
2	42300	36265.4321
3	31500	25005.71559
4	11900	8746.855248
5	33700	22935.65374
net present value	sum of present value of cash flow	19916.61964
Answer is	1
2-
Year	cash flow
0	-96000
1	24800
2	42300
3	31500
4	11900
5	33700
IRR =using irr function in MS excel =irr(-96000,24800,42300,31500,11900,33700)	15.82%
Answer is	1
3-
Year	cash flow	present value of cash flow = cash flow/(1+r)^n r = 8%	cumulative present value of cash flow
0	-96000	-96000
1	24800	22962.96296	22962.96
2	42300	36265.4321	59228.4
3	31500	25005.71559	84234.11
4	11900	8746.855248	92980.97
5	33700	22935.65374	3019.034
discounted payback period	year before the final recovery+(amount to be recovered/present value of cash flow of final recovery	4+(3019.034/22935.65)	4.13
answer is 1