Question

1.

A firm evaluates all of its projects by applying the NPV decision rule. A project under consideration has the following cash flows:

Year	Cash Flow
0	$	-34,000
1		15,000
2		17,000
3		13,000

If the NPV = $1.27, should the firm accept this project?

A) Yes

B) No

2.  

If the NPV of the above project is as stated above, how much value does it add to the firm, compared to investing in an Opportunity Cost Investment project?

A)This cannot be determined without knowing the opportunity cost of capital

B)$1.27

C)$2.54

3.

A firm evaluates all of its projects by applying the NPV decision rule. A project under consideration has the following cash flows:

Year	Cash Flow
0	$	-34,000
1		15,000
2		17,000
3		13,000

What is the NPV of the project if the opportunity cost of capital is 24 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

4.

A firm evaluates all of its projects by applying the NPV decision rule. A project under consideration has the following cash flows:

Year	Cash Flow
0	$	-34,000
1		15,000
2		17,000
3		13,000

If the NPV of the project is -$5.44, should the firm accept this project?

B) No

A) Yes

5.

Consider these cash flows:

Year	Cash Flow
0	$	-16,700
1		9,700
2		7,800
3		4,300

What is the BCR (profitability index) for the set of cash flows if rocc is 10 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

1. the NPV = $1.27, should the firm accept this project

NPV of the project is the presenst value if the future cash flows that the project generates - intial investment in the project. if the NPV is positive it means as in today the project is able to generate more returns than the amount invested. So the firm should accept the project.

so yes (A)

2. If the NPV of the above project is as stated above, how much value does it add to the firm, compared to investing in an Opportunity Cost Investment project

In order to find how much extra value does this project give when compare to investeing in opportunity cost investment project we need to first have the returns information of the opportunity cost investment project so

answer is A)This cannot be determined without knowing the opportunity cost of capital

3.the NPV of the project if the opportunity cost of capital is 24 percent (per year )is as follows

year	Cash flow (A)	Present value factor (B)@24%	(A*B) present value of cash flows
	-34,000		-34000
1	15,000	0.806452=1/1.24	12096.77
2	17,000	0.650364=1/(1.24)^2	11056.19
3	13,000	0.524487=1/(1.24)^3	6818.334
		Total	-4028.69

NPV of the project=-4028.69$

4.If the NPV of the project is -$5.44, should the firm accept this project

B No it should not accept because the retuns are less than the intial investment

5. profitability index= present value of future cahsflows/intial investment

presen value of future cash flows @10% =

year	Cash flow (A)	Present value factor (B) @ 10%	(A*B) present value of cash flows
1	9,700	0.909090909	8818.182
2	7,800	0.826446281	6446.281
3	4,300	0.751314801	3230.654
		Total	18495.12$

so intial investment= 16700$

=profitability index=18495.12$/ 16700$=1.1074