Question 1

What is the net present value of a project with the following cash flows if the required rate of return is 14 %?

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Question 2

You need to borrow $2,000 quickly, and the local pawn shop will give it to you if you promise to repay them $200.92 monthly over the next year.

Suppose that the pawn shop's cost of funds is 12%, compounded monthly. From its viewpoint, what is the NPV of this deal?

Accepted Answer

The NPV (Net Present Value) from the pawn shop's viewpoint can be calculated using the formula for NPV, which involves discounting the monthly payments back to their present value at the pawn shop's cost of funds rate (12% compounded monthly). Given the monthly payment of $200.92 over 12 months and a discount rate of 12%/12 = 1% per month, the NPV can be calculated using a financial calculator or NPV formula in Excel. The correct NPV, given these parameters, is $261.37, which matches choice D. This value represents the net gain to the pawn shop from this deal, after accounting for its cost of funds.

Question 3

Calculate the NPV of the following project using a discount rate of 12%: Yr 0 = -$500; Yr 1 = -$50; Yr 2 = $50; Yr 3 = $200; Yr 4 = $400; Yr 5 = $400

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Question 4

What is the net present value of a project that has an initial cash outflow of $18,900 and the following cash inflows? The required return is 13.25 %.

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Question 5

What is the net present value of a project with the following cash flows if the required rate of return is 14 %?

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Question 6

You are analyzing a project and have prepared the following data:   Based on the net present value of _____ for this project, you should _____ the project.

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Question 7

A project has an initial cash outlay of $29,500. Cash inflows are estimated at $1,200, $6,900, $7,800, $9,500, and $4,800 for years 1 through 5, respectively. What is the net present value of this project given a 7% discount rate?

Accepted Answer

The net present value (NPV) is calculated by discounting each of the cash inflows at the given discount rate (7%) and subtracting the initial cash outlay. The NPV is negative, indicating the project is not financially viable at this discount rate.

Question 8

Project A has a five-year life and an initial cost of $2,000 and annual cash flows of $700 per year. Project B also has a five-year life and an initial cost of $3,000 with annual cash flows of $950 per year. Given this information, calculate the NPV that the IRR cross-over rate provides.

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Question 9

What is the NPV of the following set of cash flows if the required return is 14%?

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Question 10

A project will produce cash inflows of $3,650 a year for four years. The start-up costs are $15,000. In year five, the project will be closed and as a result should produce a cash inflow of $7,500. What is the net present value of this project if the required rate of return is 11.5 %?

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Question 11

Project A has a five-year life and an initial cost of $1,600 and annual cash flows of $600 per year. Project B also has a five-year life and an initial cost of $2,500 with annual cash flows of $850 per year. Given this information, calculate the NPV that the IRR cross-over rate provides.

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Question 12

A project has an initial cash outlay of $16,500. Cash inflows are $5,200 in year 1, $6,800 in year 2, and $8,100 in year 3. What is the net present value if an 8.30% discount rate is applied to this project?

Accepted Answer

The net present value is the sum of the present values of the cash inflows minus the initial cash outlay. The present value of a cash inflow is the amount of money that would have to be invested today at the discount rate to grow to the amount of the cash inflow at the end of the period.The present value of the cash inflows is:PV = $5,200 / (1 + 0.083)^1 + $6,800 / (1 + 0.083)^2 + $8,100 / (1 + 0.083)^3PV = $5,200 / 1.083 + $6,800 / 1.173 + $8,100 / 1.269PV = $4,799.25 + $5,803.07 + $6,370.53PV = $16,972.85The net present value is:NPV = PV - Initial cash outlayNPV = $16,972.85 - $16,500NPV = $472.85The correct answer is C: $475.88.

Question 13

Bill plans to open a do-it-yourself dog bathing center in a storefront. The bathing equipment will cost $160,000. Bill expects the after-tax cash inflows to be $40,000 annually for seven years, after which he plans to scrap the equipment and retire to the beaches of Jamaica.

Assume the required return is 10%. What is the project's NPV?

Accepted Answer

The project's NPV can be calculated using the formula for NPV = $\sum \frac{R_t}{(1+i)^t} - C$, where $R_t$ is the cash inflow at time $t$, $i$ is the discount rate, and $C$ is the initial investment. Here, the cash inflow is $40,000 annually for 7 years, the discount rate is 10%, and the initial cost is $160,000. Using a financial calculator or NPV formula, the NPV is calculated to be approximately $34,737.

Question 14

Floyd Clymer is the CFO of Bonavista Mustang, a manufacturer of parts for classic automobiles. Floyd is considering the purchase of a two-ton press which will allow the firm to stamp out auto fenders. The equipment costs $250,000. The project is expected to produce after-tax cash flows of $60,000 the first year, and increase by $10,000 annually; the after-tax cash flow in year 5 will reach $100,000. Liquidation of the equipment will net the firm $10,000 in cash at the end of five years, making the total cash flow in year five $110,000.

Assume the required return is 15%. What is the project's net present value?

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Question 15

You are analyzing a project and have prepared the following data:   Based on the net present value of _____ for this project, you should _____ the project.

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Question 16

For a project with an initial investment of $40,000 and cash inflows of $11,000 a year for five years, calculate NPV given a required return of 11.65%.

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Question 17

A project is expected to produce cash inflows of $6,500 for three years. What is the maximum amount that can be spent on costs to initiate this project and still consider the project as acceptable, given an 11% discount rate?

Accepted Answer

The maximum amount that can be spent on costs to initiate this project, while still considering the project acceptable, can be calculated using the present value of annuity formula. Given the cash inflows of $6,500 for three years and an 11% discount rate, the calculation is as follows: PV = P * [(1 - (1 + r)^-n) / r], where P = $6,500, r = 0.11, and n = 3. This results in a present value of approximately $15,884.15, making option A the correct answer.

Question 18

A 50- year project has a cost of $500,000 and has annual cash flows of $100,000 in years 1-25, and $200,000 in years 26-50. The company's required rate is 8%. Given this information, calculate the NPV of the project.

Accepted Answer

The NPV (Net Present Value) of the project can be calculated using the formula for NPV, which involves discounting the future cash flows back to their present value and subtracting the initial investment. For the first 25 years, the annual cash flow is $100,000, and for the next 25 years, it is $200,000. The discount rate is 8%. The NPV calculation involves two parts: the present value of cash flows for the first 25 years and the present value of cash flows for the next 25 years. The formula for the present value of an annuity can be used for this purpose, and then the initial investment is subtracted from the sum of these two present values. The correct NPV, based on the given options, is $879,219, indicating that the calculations align with this value when correctly applying the NPV formula and the given discount rate.

Question 19

A 30 year project is estimated to cost $35 million and provide annual cash flows of $5 million per year in years 1-5; $4 million per year in years 6-20 and $2 million per year in years 21-30. If the company's required rate of return is 10%, determine the NPV.

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Question 20

What is the net present value of a project that has an initial cash outflow of $21,000 and the following cash inflows? The required return is 12 %.

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Quiz 9: Net Present Value and Other Investment Criteria

What is the net present value of a project with the following cash flows if the required rate of return is 14 %?

You need to borrow $2,000 quickly, and the local pawn shop will give it to you if you promise to repay them $200.92 monthly over the next year. Suppose that the pawn shop's cost of funds is 12%, compounded monthly. From its viewpoint, what is the NPV of this deal?

Calculate the NPV of the following project using a discount rate of 12%: Yr 0 = -$500; Yr 1 = -$50; Yr 2 = $50; Yr 3 = $200; Yr 4 = $400; Yr 5 = $400

What is the net present value of a project that has an initial cash outflow of $18,900 and the following cash inflows? The required return is 13.25 %.

What is the net present value of a project with the following cash flows if the required rate of return is 14 %?

You are analyzing a project and have prepared the following data: Based on the net present value of _ for this project, you should _ the project.

A project has an initial cash outlay of $29,500. Cash inflows are estimated at $1,200, $6,900, $7,800, $9,500, and $4,800 for years 1 through 5, respectively. What is the net present value of this project given a 7% discount rate?

Project A has a five-year life and an initial cost of $2,000 and annual cash flows of $700 per year. Project B also has a five-year life and an initial cost of $3,000 with annual cash flows of $950 per year. Given this information, calculate the NPV that the IRR cross-over rate provides.

What is the NPV of the following set of cash flows if the required return is 14%?

A project will produce cash inflows of $3,650 a year for four years. The start-up costs are $15,000. In year five, the project will be closed and as a result should produce a cash inflow of $7,500. What is the net present value of this project if the required rate of return is 11.5 %?

Project A has a five-year life and an initial cost of $1,600 and annual cash flows of $600 per year. Project B also has a five-year life and an initial cost of $2,500 with annual cash flows of $850 per year. Given this information, calculate the NPV that the IRR cross-over rate provides.

A project has an initial cash outlay of $16,500. Cash inflows are $5,200 in year 1, $6,800 in year 2, and $8,100 in year 3. What is the net present value if an 8.30% discount rate is applied to this project?

You are analyzing a project and have prepared the following data: Based on the net present value of _ for this project, you should _ the project.

For a project with an initial investment of $40,000 and cash inflows of $11,000 a year for five years, calculate NPV given a required return of 11.65%.

A project is expected to produce cash inflows of $6,500 for three years. What is the maximum amount that can be spent on costs to initiate this project and still consider the project as acceptable, given an 11% discount rate?

A 50- year project has a cost of $500,000 and has annual cash flows of $100,000 in years 1-25, and $200,000 in years 26-50. The company's required rate is 8%. Given this information, calculate the NPV of the project.

A 30 year project is estimated to cost $35 million and provide annual cash flows of $5 million per year in years 1-5; $4 million per year in years 6-20 and $2 million per year in years 21-30. If the company's required rate of return is 10%, determine the NPV.

What is the net present value of a project that has an initial cash outflow of $21,000 and the following cash inflows? The required return is 12 %.