A firm is planning an investment in a project. The initial investment is 230,000. The project returns $100,000 cash at the end of one year. At the end of second year the project returns cash of amount $F. These are only cash flows from the project. If the IRR for the project is 10%, what is the amount $F?

Your Answer:Question 1 options:

Answer

Save

Question 2 (1 point)

This question will require you to use Excel's IRR function. A firm invests $100,000 in a project today. It receives $15,000 a year from now, $20,000 two years from now, and $95,000 three years from now and nothing more. What is the IRR of the project?

The format of Excel's IRR function is =IRR(aX:aY,Z)

Where aX:aY are cells aX to aY which have cash flows entered into them. The initial investment is a negative cash flow so it should have a negative sign.

Z is a "guess" IRR, usually you can set to 0.1 (which is 10%).

Answer should be a number given as a %. That is, for example 3.18% should be answered as 3.18 rather than 3.18% or 0.0318

Your Answer:Question 2 options:

Answer

Save

Question 3 (1 point)

This question will require you to use Excel's Rate function.You can use the IRR function, but in case of an Annuity with a large number of periods, it can become cumbersome.

A firm purchases Treasury bonds for $250,000. The Face Value of the bonds are $300,000. It receives yearly coupons of $12,000 for 8 years. At the end of 8 years the firm receives the Face Value of $300,000 plus the coupon payment for the 8th year, and then the bonds are extinguished.

What is the IRR from the investment in the bonds?

Here is an example of the format of Excel's RATE function:

=RATE(3,10,-100,150,0,0.1)

3 is the number of periods, 10 the periodic payments, -100 the time 0 cash flow, and 150 the additional cash flow on the last period.

The 0, is format saying the payments occur at the end of every period, and 0.10 is the initial guess for the return.

Answer should be a number given as a %. That is, for example 3.18% should be answered as 3.18 rather than 3.18% or 0.0318

Your Answer:Question 3 options:

Answer

Save

Question 4 (1 point)

This is a Growing perpetuity formula. Remember the rate of discount and rate of return are one and the same thing.

A firm has invested $120,000 in a project. The project will return cash of $2,000 at the end of the first year, and every year in the future with a growth rate of 5%. That is, it will return $2,100 at the end of the second year, $2,205 at the end of the third year and so on.

What is the IRR for the project?

Your Answer:Question 4 options:

Answer

Save

Question 5 (2 points)

A firm is evaluating a product. The market demand for the product can be low or high.

The product requires an investment of $1,050.

If the market demand is low, then there is a 70% chance that the product will sell for $800 and a 30% chance it will sell for $1,200.

What is the NPV of the project if the market demand is low?

?

Your Answer:Question 5 options:

Answer

Save

Question 6 (2 points)

A firm is evaluating a product. The market demand for the product can be low or high.

The product requires an investment of $1,010.

If the market demand is high, then there is a 40% chance that the product will sell for $900 and a 60% chance it will sell for $1,250.

What is the NPV of the project if the market demand is high?

Remember, if your answer is negative, then don't forget to put a - sign before your answer. For example, if your answer if negative 100, you should enter -100 in the answer box.

Your Answer:Question 6 options:

Answer

Save

Question 7 (2 points)

You are evaluating a product. The market demand for the product can be low or high.

The product requires an investment of $500.

If the market demand is high, the product will have a payoff of $800. If the market demand is low, the product will have payoff of $340.

You do not know whether the market demand is high or low, but you know the probability that the market demand will be high is 75%, and that it will be low is 25%.

Given the above information, you calculate the NPV to be:

(0.75*800 + 0.25*340) - 500

Now, a market research organization offers to do a survey to determine whether the demand will be high or low BEFORE you make the 500 investment.

What is the value of the survey to you? That is, the maximum amount you would be ready to pay to have the survey conducted?

(Your answer should be positive)