Mr. Big purchased a corner lot five years ago at a cost of $498,000 and then spent $63,500 on grading and drainage so the lot could be used. The lot was recently appraised at $610,000. The company now wants to build a new retail store on the site. The building cost is estimated at $1.1 million. What amount should be used as the opportunity costs at time 0 for this building project?

$1,710,000

$673,500

$1,100,000

$561,500

$610,000

Your firm is considering a project with a four-year life and an initial cost of $87,000. The discount rate for the project is 15 percent. The firm expects to sell 1,800 units a year. The cash flow per unit is $19. The firm will have the option to abandon this project after two years at which time they expect they could sell the project for $40,000. At what level of sales should the firm be willing to abandon this project?
A. 1,295 units
B. 1,361 units
C. 1,540 units
D. 1,565 units

The equipment cost (equipment plus shipping and installation) can be depreciated at the rate of 21% in the first year. For the remaining 5 years (years 2-6) the depreciation will be equal to $30,000 per year. What is the amount of depreciation in year 1?

Project A has an initial cost of $211,400 and projected cash flows of $46,200, $64,900, and $135,800 for Years 1 to 3, respectively. Project B has an initial cost of $187,900 and projected cash flows of $43,200, $59,700, and $125,600 for Years 1 to 3, respectively. What is the incremental IRR_A–B of these two mutually exclusive projects?

An oil well will have a first cost of $470,000 and annual costs of $131,250. Income is expected to be $190,000 per year. What is the payback period at 6% per year interest?

a. Between 8&9 years

b. Between 9&10 years

c. Between 10&11 years

d. Between 11&12 years

PowerPlug Corp. is evaluating a project that will cost $400,000 initially and will generate free cash flows of either $440,000 (with a probability of 30%) or $600,000 (with a probability of 70%) in one year.

The risk-free rate is 2% and the project's required return is 12%. Assume perfect capital markets.

Part 1: If the project is the only project of the firm, what is the initial value of equity (in $)?

Part 2: If the company finances 30% of the project by borrowing the initial costs at the risk-free rate, what is the initial value of equity (in $)?

Sheridan, Inc., a resort management company, is refurbishing one of its hotels at a cost of $7,156,793. Management expects that this will lead to additional cash flows of $1,650,000 for the next six years. What is the IRR of this project? If the appropriate cost of capital is 12 percent, should Sheridan go ahead with this project?

Project A has a total present value of future cash flows of $98,200 and a cost of $102,000. Project B has a total present value of future cash flows of $386,911 and a cost of $287,211. Project C has a total present value of future cash flows of $784,000 and a cost of $668,000. Project D has a total present value of future cash flows of $119,865 and a cost of $98,770. Which of these projects has the highest Profitability Index?