Exam 9: Net Present Value and Other Investment Criteria

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

Yancy is considering a project which will produce cash inflows of $900 a year for 4 years. The project has a 9 percent required rate of return and an initial cost of $2,800. What is the discounted Payback period?

Fora project with conventional cash flows, if NPV is greater than zero, then:

Project X has a cost of $750 and a three year annual cash flow of $350 per year. Project Y has a cost of $500 and a three year annual cash flow of $300, $225 and $200. Given this information, Calculate the IRR cross-over rate.

According to the capital budgeting surveys cited in the text, in general, most financial managers of large Canadian firms:

The internal rate of return is:

You are considering two mutually exclusive projects with the following cash flows. Which project(s) should you accept if the discount rate is 7 percent? What if the discount rate is 10 percent?

To find the __________ we begin by setting the NPV of a project equal to zero.

A project has an initial cost of $72,500. The cash inflows are $11,500, $36,900, $22,900, and $18,200 over the next four years, respectively. What is the payback period?

Assuming that straight line depreciation is used, the average accounting return for a project is computed as the average:

An independent project has conventional cash flows and a positive net present value. It can be stated with certainty that the project is acceptable according to the capital budgeting technique Known as:

The internal rate of return tends to be:

Explain the differences and similarities between NPV and PI.

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 payback of the project.

You are analyzing a project and have prepared the following data: Based on the internal rate of return of _____ for this project, you should _____ the project.

NPV and IRR can lead to different decisions in situations investment decision involves mutually exclusive choices.

The discount rate that makes the net present value of an investment exactly equal to zero is called the:

Elderkin & Martin is considering an investment which will cost $259,000. The investment produces no cash flows for the first year. In the second year, the cash inflow is $58,000. This inflow will Increase to $150,000 and then $200,000 for the following two years before ceasing permanently. The firm requires a 14 percent rate of return and has a required discounted payback period of three Years. The firm should _____ the project because the discounted payback period is _____ years. Accept or reject this project? Why?

Yuliis analyzing the following two mutually exclusive projects and has developed the following cash flow information. What is the crossover rate?

The primary idea behind the net present value rule is that an investment: