# Net Present Value and Discount Rate

Pages: 3 (446 words) Published: November 20, 2011
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....