Question 12 pts

Growth Enterprises believes its latest project, which will cost $88,000 to install, will generate a perpetual stream of cash flows. Cash flow at the end of the first year will be $10,560. What is the projects IRR?

not enough information

10.56%

12%

8.8%

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Question 21 pts

Consider a project with the following cash flows:

CF0=$100 million, CF1=$-60 million, CF2=$-60 million.

Should you accept or reject the project if the discount rate is 12%?

Reject the project due to a negative NPV

Accept the project because IRR>OCC

Accept the project due to a positive NPV

Reject the project because IRR

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Question 31 pts

A project has the following cash flows:

Year CF

-$200

+$80

+$80

+$80

+$80

What is the (straight) payback period if the opportunity cost of capital (OCC) is 11%?

3 years

2.5 years

3.1 years

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Question 41 pts

Given your answer in the last question and that you want to use the payback rule with a cutoff period of 3 years, would you accept the project?

no

yes

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Question 51 pts

A project has the following cash flows:

Year CF

-$200

+$80

+$80

+$80

+$80

What is the discounted payback period if the opportunity cost of capital (OCC) is 11%?

3 years

2.5 years

3.1 years

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Question 61 pts

Whats the profitability index of the project in the previous question, if the opportunity cost of capital is 11%?

0.482

0.241

0.131

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Question 72 pts

A precision lathe costs $26,000 to buy (in year 0) and will cost $36,000 a year to operate and maintain (year 1 to year 5). If the discount rate is 10% and the lathe will only last for 5 years, what is the equivalent annual cost of the tool?

$41,200

$42,859

$36,000

$54,342

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Question 81 pts

A firm can lease a truck for 4 years at a cost of $30,000 annually. It can instead buy a truck at a cost of $80,000 (in year 0), with annual maintenance expenses of $10,000 (year 1 to year 4). The truck lasts four years. The discount rate is 10%. Is it better to lease instead of buying the truck?

Buy

Lease