Exam 9: Net Present Value and Other Investment Criteria

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 discounted payback period?

The length of time required for an investment's discounted cash flows to equal its initial cost is the:

An investment is acceptable if it's IRR:

You are considering a project with an initial cost of $27,900. What is the payback period for this project if the cash inflows are $14,650, $16,190, $12,480, and $9,500 a year over the next four years, Respectively?

Use the following mutually exclusive investment cash flows for the question(s) below: Compute the crossover rate for the two projects.

If the required return is zero, then:

The Blue Moon is considering a project which will produce sales of $120,000 a year for the next five years. The profit margin is estimated at 5.5 percent. The project will cost $140,000 and will be Depreciated straight-line to a book value of zero over the life of the project. The firm has a required Accounting return of 9.5 percent. This project should be _____ because the AAR is _____ percent.

The payback rule can be best stated as:

Without using formulas, provide a definition of payback period.

You are considering an investment with the following cash flows. If the required rate of return for this investment is 13.5 percent, should you accept it based solely on the internal rate of return rule? Why or why not?

You run a small bagel shop and are considering replacing your four employees with automated machines that allow customers to buy their bagels without any human interaction. Of the following, The most difficult task you face in computing the NPV of this change is the:

Without using formulas, provide a definition of internal rate of return (IRR).

Peter is considering a project with an initial cost of $42,000 and annual cash inflows of $9,100 a year for six years. What discount rate, when applied to this project, will produce a profitability index Of 1.0?

The difference between the present value of an investment and its cost is the:

The payback period and discounted payback are biased in favour of liquid investments.

What is the profitability index of the following investment if the required return = 14%?

Project A and B have 4 year timelines. Project A has an initial investment of $120,000 and cash inflows of $50,000, $50,000 $30,000 and $30,000. Project B has an initial investment of $190,000 And cash inflows of $80,000, $70,000, $70,000 and $60,000. At what rate of interest would a Company be indifferent at choosing project A or B?

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

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

The following four-year project has an initial cost of $1,000,000. The future cash inflows for the next four years are $400,000, $300,000, $200,000, and $200,000, respectively. What is the payback Period for this project?