1. Top Shelf Industries is considering remodeling a building that it leases to a retail store. The remodeling costs are estimated at $500,000. If it proceeds with the remodeling, the tenant has agreed to pay an additional $120,000 a year in rent for the next 6 years. The discount rate is 4.9 percent. What is the net present value of the remodeling project to Top Shelf Industries? a. $108,146 b. $109,552 c. $110,461 d. $111,036 e. $112,864

2. What is the payback period for a project with the following cash flows?

Year 0 1 2 3 4

Cash flow -$37,800 6,300 8,700 9,800 12,600 a. 3.54 years b. 3.61 years c. 3.73 years d. 3.88 years e. 3.95 years

3. A project has the following expected cash inflows for its four-year life: $2,300, $3,700, $4,500, $5,400. The profitability index is 1.401 and the discount rate is 6.2 percent. What is the initial cost of the project? a. $9,500 b. $9,600 c. $9,700 d. $9,800 e. $9,900

4. Franchising, Inc. is considering a major investment. The investment will have an initial cost of $800,000. The cash inflows generated by the project are estimated at $150,000 for the first three years and $100,000 for the following 5 years. What is the internal rate of return? (Hint: It may be easier to find the correct answer by trial and error, especially if you do not have a financial calculator.) a. 19.19 percent b. 19.24 percent c. 19.26 percent d. 19.32 percent e. 19.35 percent

5. Chester's has a proposed project that will generate sales of 4,000 units at a selling price of $56 each. The fixed costs are $35,000 and the variable costs per unit are $31. The project requires $50,000 of fixed assets that will be depreciated on a straight-line basis to a zero book value over the 5-year life of the project. The salvage value of the fixed assets is $14,000 and the tax rate is 25 percent. What is the after-tax cash flow for the final year? a. $61,050 b. $61,550 c. $61,750 d. $62,250 e. $62,875