Question 1(10 points)

A project has an initial cost of $6,500. The cash inflows are $900, $2,200, $3,600, and $4,100 over the next four years, respectively. What is the payback period?

Question 1 options:

1.73 years

2.51 years

2.94 years

3.51 years

3.94 years

Question 2(10 points)

You are offered an investment with returns of $ 2,355 in year 1, $ 4,841 in year 2, and $ 5,071 in year 3. The investment will cost you $ 5,030 today. If the appropriate Cost of Capital (quoted interest rate) is 8.7 %, what is the Net present Value of the investment? Enter your answer to the nearest $.01. Do not use the $ sign or commas in your answer. If the NPV is negative, use the - sign.Your Answer:

Question 2 options:

Answer

Question 3(10 points)

Alicia is considering adding toys to her gift shop. She estimates that the cost of inventory will be $7,500. The remodeling expenses and shelving costs are estimated at $1,800. Toy sales are expected to produce net cash inflows of $2,300, $2,900, $3,200, and $3,400 over the next four years, respectively. Should Alicia add toys to her store if she assigns a three-year payback period to this project? Why or why not?

Question 3 options:

No; The payback period is 2.93 years

No; The payback period is 3.26 years

Yes; The payback period is 2.93 years

Yes; The payback period is 3.01 years

Yes; The payback period is 3.26 years

Question 4(10 points)

You are offered an investment with returns of $ 1,696 in year 1, $ 4,167 in year 2, and $ 5,276 in year 3. The investment will cost you $ 6,939 today. If the appropriate Cost of Capital (quoted interest rate) is 11.7 %, what is the Profitability Index of the investment? Enter your answer to the nearest .01. Do not use the $ sign or commas in your answer. If the NPV is negative, use the - sign.Your Answer:

Question 4 options:

Answer

Question 5(10 points)

The Sea Corporation has been presented with an investment opportunity which will yield cash flows of $40,000 per year in Years 1 through 4, $5,000 per year in Years 5 through 9, and $60,000 in Year 10. This investment will cost the firm $173,000 today, and the firm's cost of capital is 10 percent. What is the payback period for this investment?

Question 5 options:

between 3 and 4 years.

between 4 and 5 years

between 5 and 6 years

between 6 and 7 years

None of the above are correct.

Question 6(10 points)

You are considering the purchase of an investment that would pay you $5,000 per year for Years 1-5, $3,000 per year for Years 6-8, and $2,000 per year for Years 9 and 10. If you require a 14 percent rate of return, and the cash flows occur at the end of each year, then how much should you be willing to pay for this investment?

Question 6 options:

$15,819.27

$21,937.26

$32,415.85

$38,000.00

$52,815.71

Question 7(10 points)

Shannon Industries is considering a project which has the following cash flows:Year-Cash Flow,Year 0-$???, Year 1-$2,000,2-$3,000,Year 3-$3,000, Year 4-$1,500The project has a payback of 2.5 years. The firm's cost of capital is 12 percent. What is the project's net present value NPV?

Question 7 options:

$ 577.68

$ 765.91

$1,049.80

$2,761.32

$3,765.91

Question 9(5 points)

Which one of the following is an advantage of the average accounting return method of analysis?

Question 9 options:

easy availability of information needed for the computation

inclusion of time value of money considerations

the use of a cutoff rate as a benchmark

the use of pre-tax income in the computation

use of real, versus nominal, average income

Question 10(5 points)

Projects S and L are equally risky, mutually exclusive, and have normal cash flows. Project S has an IRR of 15%, while Project L's IRR is 12%. The two projects have the same NPV when the WACC is 7%. Which of the following statements is CORRECT?

Question 10 options:

If the WACC is 6%, Project S will have the higher NPV.

If the WACC is 13%, Project S will have the lower NPV.

If the WACC is 10%, both projects will have a negative NPV.

If the WACC is 10%, both projects will have positive NPVs.

Question 11(5 points)

Projects C and D both have normal cash flows and are mutually exclusive. Project C has a higher NPV if the WACC is less than 12%, whereas Project D has a higher NPV if the WACC exceeds 12%. Which of the following statements is CORRECT?

Question 11 options:

Project D is probably larger in scale than Project C.

Project C probably has a faster payback

Project C probably has a higher IRR.

Project D probably has a higher IRR.

Question 12(5 points)

Which one of the following methods of project analysis is defined as computing the value of a project based upon the present value of the project's anticipated cash flows?

Question 12 options:

constant dividend growth model

discounted cash flow valuation

average accounting return

expected earnings model

internal rate of return

Question 13(5 points)

When the present value of the cash inflows exceeds the initial cost of a project, then the project should be:

Question 13 options:

accepted because the internal rate of return is positive

accepted because the profitability index is greater than 1

accepted because the profitability index is negative

rejected because the internal rate of return is negative

rejected because the net present value is negative