Question
1. Basey Corporation has provided the following data concerning an investment project that it is considering: Initial investment $ 510,000 Working capital $ 30,000 Annual
1. Basey Corporation has provided the following data concerning an investment project that it is considering:
Initial investment | $ | 510,000 | |
Working capital | $ | 30,000 | |
Annual cash flow | $ | 173,000 | per year |
Salvage value at the end of the project | $ | 12,000 | |
Expected life of the project | 4 | years | |
Discount rate | 15 | % | |
Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using the tables provided.
The working capital would be released for use elsewhere at the end of the project. The net present value of the project is closest to:
Multiple Choice
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$(9,048)
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$(39,048)
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$(21,888)
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$194,000
2. Joetz Corporation has gathered the following data on a proposed investment project (Ignore income taxes.):
Investment required in equipment | $ | 30,000 | |
Annual cash inflows | $ | 6,000 | |
Salvage value of equipment | $ | 0 | |
Life of the investment | 15 | years | |
Required rate of return | 10 | % | |
The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for the initial investment.
Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using the tables provided.
The internal rate of return of the investment is closest to:
Multiple Choice
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16%
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18%
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20%
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22%
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