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1.The difference between the present value of an investment's future cash flows and its initial cost is the: net present value. payback period. discounted payback period. internal rate of return. profitability index. 4. Accepting a positive net present value (NPV) project: means the present value of the expected cash flows is equal to the project's cost. is expected to increase the stockholders' value by the amount of the NPV. ignores the inherent risks within the project. guarantees all cash flow assumptions will be realized. indicates the project will pay back within the required period of time. 5. The net present value method of capital budgeting analysis does all of the following except: use all of a project's cash flows. Provide a specific anticipated rate of return. incorporate risk into the analysis. consider all relevant cash flow information. discount all future cash flows. 6. What is the net present value of a project with an initial cost of $36,900 and cash inflows of $13,400, $21,600, and $10,000 for Years 1 to 3, respectively? The discount rate is 13 percent. $287.22 $1,195.12 $204.36 -$1,350.49 $797.22 Maxwell Software, Inc., has the following mutually exclusive projects. Project A Year Project B 0 -$32,000 -$35,000 1 18,000 19,000 2 14,500 13,000 3 4,100 14,500 a-1. Calculate the payback period for each project. (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) Payback period years Project A years Project B a-2. Which, if either, of these projects should be chosen? Project A Project B Both projects Neither project b-1. What is the NPV for each project if the appropriate discount rate is 15 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) NPV Project A Project B $ $ b-2.Which, if either, of these projects should be chosen if the appropriate discount rate is 15 percent? Project A Project B Both projects Neither projec 8. Flatte Restaurant is considering the purchase of a $9,200 souffl maker. The souffl maker has an economic life of five years and will be fully depreciated by the straight-line method. The machine will produce 1,600 souffls per year, with each costing $2.40 to make and priced at $4.85. Assume that the discount rate is 10 percent and the tax rate is 40 percent. What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV $ Should the company make the purchase? No Yes 9. -2-2 http://ezto.mhedu The Best Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 34 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project. Investment Sales revenue Operating costs Depreciation Net working capital spending a. $ Year 0 40,000 Year 1 $ 460 20,500 $ 4,300 10,000 510 Year 2 21,000 $ 4,400 10,000 560 Year 3 Year 4 21,500 $ 4,500 10,000 460 18,500 3,700 10,000 ? Compute the incremental net income of the investment for each year. (Do not round intermediate calculations.) Net income Year 1 $ Year 2 $ Year 3 $ Year 4 $ b. Compute the incremental cash flows of the investment for each year. (Do not round intermediate calculations. A negative answer should be indicated by a minus sign.) Year 0 Year 1 Year 2 Year 3 Year 4 $ $ $ $ $ Cash flow c. Suppose the appropriate discount rate is 12 percent. What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV $