Question
Show ALL CALCULATIONS. Answers without supporting calculations will be deemed a guess and will not receive any credit. Q4. Huda Inc. is considering a new
Show ALL CALCULATIONS. Answers without supporting calculations will be deemed a guess and will not receive any credit.
Q4. Huda Inc. is considering a new five year engineering system that requires an initial fixed asset investment of $113,000, and it will save an estimated 330,000 kilowatt-hours (kWh) of electric power each year over a five-year period. A kilowatt-hour electricity costs $0.10, and the company uses a minimum attractive rate of return (MARR) of 20% per year in its economic evaluations of renewed systems. The market value of the system will be $40,000 at the end of five years, and additional annual operating and maintenance expenses are negligible. Should this system be installed based on NPV method?
a. Yes, since NPV = $2,330
b. Yes, since NPV =$1,765
c. No, since NPV = -$2,330
d. No, since NPV = -$21765
e. none of the above, the answer is $ __________
Q5. The value of an investment comes from its cash flows. Lets say Zainab is intent on receiving $45,000 per year, starting at the end of year one and
continuing over 10 years. A lump sum of $380,000 invested now (year 0) will allow her to receive her desired annual amount. What interest rate is
required to make this happen?
a. 4.9865%
b. 4.3643%
c. 3.19857%
d. 3.45646%
e. None of the above, the answer is _____________.
Q6. As the capital budgeting director for Lafarge Cement Corporation, Abdulla is evaluating construction of a new plant. The plant has a net cost of $5 million in Year 0 (today), and it will provide net cash inflows of $1 million at the end of Year 1, $1.5 million at the end of Year 2, and $2 million at the end of Years 3 through5. Within what range is the plant's IRR?
a. 14-15%
b. 15-16%
c. 16-17%
d. 17-18%
e. 18-19%
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