1. A company is considering updating its obsolete plant and equipment. The new equipment would be assumed to have a fifteen-year useful life. A discounted cash flow analysis of the costs and benefits showed that the plant and equipment would have a net present value of ($240,000). However, uncertainty exists as to the intangible benefits of upgrading the plant and equipment. The company is subject to a cost of capital of 14%. How much would the plant and equipment's intangible benefits have to amount to annually to make the investment worthwhile?

Multiple Choice

$10,000

$20,000

$30,000

$39,072

2.

A company is considering updating its obsolete plant and equipment. The new equipment would be assumed to have a twenty-year useful life. A discounted cash flow analysis of the costs and benefits showed that the plant and equipment would have a net present value of ($600,000). However, uncertainty exists as to the intangible benefits of upgrading the plant and equipment. The company is subject to a cost of capital of 15%. How much would the plant and equipment's intangible benefits have to amount to annually to make the investment worthwhile?

Multiple Choice

• $10,000

• $20,000

• $47,931

• $95,862

3.

A company is considering updating its obsolete plant and equipment. The new equipment would be assumed to have a twenty-five year useful life. A discounted cash flow analysis of the costs and benefits showed that the plant and equipment would have a net present value of ($600,000). However, uncertainty exists as to the intangible benefits of upgrading the plant and equipment. The company is subject to a cost of capital of 8%. How much would the plant and equipment's intangible benefits have to amount to annually to make the investment worthwhile?

Multiple Choice

• $37,471

• $20,000

• $47,931

• $56,207

4.

GNRD Inc. has the opportunity to market a product for 5 years under a specialty contract. The product will provide the company with net cash flows of $325,000. The investment calls for an initial working capital investment $350,000. The investment also calls for the purchase of equipment for $700,000. The machinery will have a salvage value of $125,000 at the end of the contract. GNRD Inc. is subject to a 24% discount rate. The net present value of this investment opportunity is:

Multiple Choice

• $74,720

• $4,100

• -$39,330

• $25,160

5.

GNRD Inc. has the opportunity to market a product for 5 years under a specialty contract. The product will provide the company with net cash flows of $200,000. The investment calls for an initial working capital investment $300,000. The investment also calls for the purchase of equipment for $500,000. The machinery will have a salvage value of $100,000 at the end of the contract. GNRD Inc. is subject to a 22% discount rate. The net present value of this investment opportunity is:

Multiple Choice

• $74,720

• $14,170

• $39,330

• $79,200

6.

What is the present value of a 10-year, $12,000 after-tax annual cash flow stream at 10%? Assume the cash flows occur at the start of each period.

Multiple Choice

• $50,000

• $61,450

• $80,000

• $81,108

7.

What is the present value of a 10-year, $15,000 after-tax annual cash flow stream at 10%? Assume the cash flows occur at the end of each period and that the first cash flows occur 4 years from now.

Multiple Choice

• $41,970

• $62,956

• $80,000

• $88,000

8.

GNRD Inc. has the opportunity to market a product for 5 years under a specialty contract. The product will provide the company with net cash flows of $280,000. The investment calls for an initial working capital investment $800,000. The investment also calls for the purchase of equipment for $350,000. The machinery will have a salvage value of $40,000 at the end of the contract. GNRD Inc. is subject to a 20% discount rate. The company is also subject to a tax rate of 45%. The net present value of this investment opportunity is:

Multiple Choice

• $74,720

• $14,170

• -$351,706

• $25,160

9.

GNRD Inc. has the opportunity to market a product for 5 years under a specialty contract. The product will provide the company with net cash flows of $120,000. The investment calls for an initial working capital investment $280,000. The investment also calls for the purchase of equipment for $200,000. The machinery will have a salvage value of $60,000 at the end of the contract. GNRD Inc. is subject to a 16% discount rate. The company is also subject to a tax rate of 28%. The net present value of this investment opportunity is:

Multiple Choice

• $74,720

• -$35,286

• -$82,432

• $25,160