Net Present Value and Discount Rate

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chapter 8

Student: ____________________________________________________________

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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....
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