1. What is the net present value of a project with the following cash flows if the discount rate is 14 percent?

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A. -$3,140.43
B. -$929.90
C. $247.181
D. $1,027.67
E. $1,127.08

2. Timothy is considering an investment of $10,000. This investment is supposedly going to provide him with cash inflows of $2,500 in the first year and $6,000 a year for the following 2 years. At a discount rate of zero percent this investment has a net present value (NPV) of _____, but at the relevant discount rate of 18 percent the project's NPV is:

A. -$1,500; $62.03.
B. -$1,500; $79.54.
C. $4,500; $62.03.
D. $4,500; $79.54.
E. $6,000; $98.48.

3. A project has the following cash flows. What is the payback period?

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A. 2.00 years
B. 2.05 years
C. 2.30 years
D. 2.64 years
E. 2.94 years

4. Deep South Sounds would like to spend $189,000 for new sound equipment. However, the company has a major loan maturing 3 years from today and needs this money at that time to avoid bankruptcy. The sound equipment is expected to increase the cash flows by $45,000 in the first year, $92,400 in the second year, and $40,000 a year for the following 3 years. Should Deep South buy the sound equipment at this time? Why or why not?

A. yes; because the money will be recovered within 2 years
B. yes; because the money will be recovered within the required 3 years C. no; because the project never pays back
D. no; because the money will not be recovered in time to pay the loan E. doesn't matter; because they lose money either way

5. A project has the following cash flows. What is the internal rate of return?

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A. 20.32 percent
B. 21.32 percent
C. 21.54 percent
D. 22.02 percent
E. 22.85 percent

6. You are considering the following two mutually exclusive projects. The crossover point is _____ percent....

...1 - Energy Costs
Find information on energy cost: Advantages (government websites)
2 - Cost of Equity, Appropriate DiscountRate (WACC)
Cost of equity 1. Formula Risk Free Rate + (Market Premium x Overall Company Beta)
2. Each part a. Risk free rate (10-year T-bill) i. bond rating chosen * interest rate * b. Market premium c. Beta i. Appropriate DiscountRate (WACC) 1. Formula Weight of Debt x After-Tax Cost of Debt) + (Debt to Equity x Cost of Equity)
2. WACC (important – why is it important for the company, Tesca, to know this?) 3. Each part (optional) a. Weigh of debt b. After-tax cost of debt c. Debt to equity d. Cost of equity
3- Recommended Generator
1. Comparing the two models: a. Warranty Cost Spreadsheet
4 - Cash Flow For Next Twenty Years and Assumptions
Fundamentals factors affecting cost of money: (page 19 of the textbook) 1. 2. 3. 4. Production opportunities Time preferences for consumption Risk Inflation
5 - Capital Budgeting Techniques
Capital budgeting techniques: (page 411 of the textbook) 1. 2. 3. 4. 5. 6. NPV IRR MIRR PI Payback Discount payback
7 - Evaluation of NPV’s Sensitivity Analysis
Based on the sensitivity analysis graph you will need to explain it. (page 436-439)
8 - Recommendations For or Against
Which of the two models should the company choose? If none of them are a good decision for the company, then...

...Time Value of Money
Exercise
1. If you invest $1000 today at an interest rate of 10% per year, how much will you have 20 years from now, assuming no withdrawals in interim?
2. a. If you invest $100 every year from the next 20 years starting one year from today and you earn interest of 10% per year, how much will you have at the end of the 20 years?
b. How much must you invest each year if you want to have $50000 at the end of the 20 years?
3. What is the presentvalue of the following cash flows at an interest rate of 10% per year? (Hints: don’t need to use the financial keys of your calculator, just dome common sense)
a. $100 received five years from now
b. $100 received 60 years from now
c. $100 received each year beginning one year from now and ending 10 years from now
d. $100 each year beginning one year from now and continuing forever
4. You want to establish a “wasting” fund, which will provide your with $1000 per year for four years, at which time the fund will be exhausted. How much must you put in the fund now if you can earn 10% interest per year?
5. You take a one-year installment loan of $1000 at an interest rate of 12% per year (1% per month) to be repaid in 12 equal monthly payments.
a. What is the monthly payment?
b. What is the total amount of interest paid over the 12-month term of the loan?
6. You are taking out a...

...Structure
A project's average net income divided by its average book value is referred to as the project's average:
A. netpresentvalue.
B. internal rate of return.
C. accounting return.
D. profitability index.
E. payback period.
The internal rate of return is defined as the:
A. maximum rate of return a firm expects to earn on a project.
B. rate of return a project will generate if the project in financed solely with internal funds.
C. discountrate that equates the net cash inflows of a project to zero.
D. discountrate which causes the netpresentvalue of a project to equal zero.
E. discountrate that causes the profitability index for a project to equal zero.
Which two methods of project analysis were the most widely used by CEO's as of 1999?
A. netpresentvalue and payback
B. internal rate of return and payback
C. netpresentvalue and average accounting return
D. internal rate of return and netpresentvalue
E. payback and average accounting return
The length of time a firm must wait to recoup, in present...

...assignment, Team D will formulate answers to determine what between Project A and Project B each project’s payback period, netpresentvalue, and internal rate of return. In addition, the team will give an analysis of what caused the ranking conflict and which project should be accepted and why. With a final comment, the team will describe factors Caledonia must consider if they were doing a lease versus buy.
Cash flows associated with these projects
RRR = 11%
Year PROJECT A PROJECT B 11%
0 ($100,000) ($100,000)
1 32,000
2 32,000 0
3 32,000 0
4 32,000 0
5 32,000 $200,000
NPV $18,269 $18,690
Required rate of return on these projects is 11 percent
a. What is each project’s payback period?
Year Project A Project B PresentValue (PV) @ 11% Project A Project B
0 -100,000 -100,000 1 -100000 -100,000
1 32,000 0 0.90 28828 0
2 32,000 0 0.81 25971 0
3 32,000 0 0.73 23398 0
4 32,000 0 0.66 21079 0
5 32,000 200,000 0.59 18990 118690
Project a 100000/32,000=3.125 years
Project b 100,000/200,000=0.5 There was no cash flow for the first 4 years 4+0.5=4.5 years
Project A’s payback period is 3.125 years whereas Project B is 4.5 years.
b. What is each project’s netpresentvalue?
The NPV for Project A is $18,269, whereas the NPV for Project B is $18,690
c....

...NetPresentValue, IRR, and the Payback Period
Infomercial Entertainment, Inc.
In the good of days—before cable TV, fax machines, and multimedia personal computers—the
phrase,"…and now a word from our sponsor…”usually meant just that, Television commercials
were continued to thirty-and sixty—second messages, grouped together to occupy only two or
three minutes of viewing time. Occasionally, if you stayed up late enough sitting in front of the
tube, you'd see thirty minute segments on riveting topics like “How to Turn $10 Into$10 Million
by Investing in Real Estate That Nobody Wants.” Since few people—except for a few former
savings and loan executives--managed to stay awake through these half-hour programs, the shows
attracted little interest.
The era of the infomercial, those thirty-minute paid video advertisements devoted to selling a
particular idea or product, didn't really begin until after the 1992 presidential campaign. Following
Ross Perot's unsuccessful bid for public office, however, things started looking up for this new
marketing venue. If Perot could use the half-hour segments on late night TV to capture l 9 percent
of the popular vote, surely other advertisers could use the infomercial as a way to communicate
their message to a sleepy, yet receptive, audience.
Indeed, in the wake of the election, many Fortune-500 corporations selling consumer
products were eager to take the plunge and go head-to-head with Letterman on...

...the American market with the acquisition of the quota of majority of Crysler is found again of forehead, over that to a new market, also to a new coin with all those that can be the risks over how commercial also those financial. Nevertheless, right now, the exchange rate between these two currencies is 1 euro =1.3118 dollars so in order to make easier the case we will use 1.31 to round it up.
The politics of the Group related to the management of the risk of change foresee, as a rule, the coverage of the future commercial flows that you/they will have bookkeeping demonstration within 12 months and of the orders acquired (or committed in progress) to put aside from their expiration. It is reasonable to believe that the relative effect of coverage suspended in the Reserve of cash flow hedge will primarily be in relief to economic account in the following exercise.
The Group is exposed to consequential risks by the variation of the rates of change, that you/they can influence on its economic result and on the value of the clean patrimony. Particularly:
Whereas the societies of the Group sustain costs denominated in different currencies by those of denomination of the respective proceeds, the variation of the rates of change can influence the Result operational of such societies. In 2012, the general amount of the commercial flows directly statements to the risk of change you/he/she has been equivalent to 10%...

...Examples Of NetPresentValue (NPV), ROI and
Payback Analysis
Introduction
Terms and Definitions
NetPresentValue - Method of calculating the expected net monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time.
DiscountRate - Also known as the hurdle rate or required rate of return, is the rate that a project must achieve in order to be accepted rather than rejected.
Return on Investment – Expected income divided by the amount originally invested
Payback Analysis – The number of years needed to recover the initial cash outlay.
Formulas
NetPresentValue = (t=1..n A * (1+r)-t OR (t=1..n A/ (1+r)t
Where A = Cash flow
r = Required rate of return
t = year of cash flow
n = the nth year
Return On Investment = (Discounted Benefits – Discounted Costs) / Discounted Costs
Payback Period = Years taken to repay initial outlay .
Eg. Project Z Outlay =...

...questions. Each solution should be accompanied by a brief explanation of no more than two (2) typed lines in length.
A) Cynthia is the Chief Financial Officer of Big Corporation (BC). Cynthia’s current objective is to evaluate five new projects with a total capital requirement of $6 million. All of the projects have a positive NPV. The overall capital available for new projects for the next year is $5 million. Which of the following statements about the capital budgeting process that Cynthia should employ is true?
1) Cynthia should rank the projects in increasing order of NPV and choose the highest ranked projects in order until the capital available is exhausted.
2) Cynthia should rank the projects in increasing order of internal rate of return and choose the highest ranked projects in order until the capital available is exhausted.
3) Cynthia should calculate the NPV of various combinations of projects and choose that combination that provides the highest NPV without exceeding the capital available.
4) Cynthia should rank the projects in decreasing order of NPV and choose the highest ranked projects in order until the capital available is exhausted.
Explanation: Calculating combinations of different projects will give Cynthia a better idea in which projects to invest in. NPV also provides proper rule for choosing mutually exclusive projects
B) Which of the following statements about diversification is false?
1) Diversification can be...