Question 1: Quick Sale Real Estate Company is planning to invest in a new development. The cost of the project will be $23 million and is expected to generate cash flows of $14,000,000, $11,750,000, and $6,350,000 over the next three years. The company's cost of capital is 20 percent. What is the internal rate of return on this project? (Round to the nearest percent.)
Question 2: Muncy, Inc., is looking to add a new machine at a cost of $4,133,250. The company expects this equipment will lead to cash flows of $814,822, $863,275, $937,250, $1,019,610, $1,212,960, and $1,225,000 over the next six years. If the appropriate discount rate is 15 percent, what is the NPV of this investment?
Question 3: Given the following cash flows for a capital project, calculate the IRR using a financial calculator
Year
0 1 2 3 4 5
Cash Flows ($50,467) $12,746 $14,426 $21,548 $8,580 $4,959
Question 4: An investment of $83 generates after-tax cash flows of $40.00 in Year 1, $74.00 in Year 2, and $127.00 in Year 3. The required rate of return is 20 percent. The net present value is
Question 5: Cortez Art Gallery is adding to its existing buildings at a cost of $2 million. The gallery expects to bring in additional cash flows of $520,000, $700,000, and $1,000,000 over the next three years. Given a required rate of return of 10 percent, what is the NPV of this project?
- -$197,446
- $1,802,554
- $197,446
- -$1,802,554
Question 6 Which ONE of the following statements about the payback method is true?
- The payback method is consistent with the goal of shareholder wealth maximization
- The payback method represents the number of years it takes a project to recover its initial investment plus a required rate of return.
- There is no economic rational that links the payback method to shareholder wealth maximization.
- None of these statements are true.
Question 7: McKenna Sports Authority is getting ready to produce a new line of gold clubs by investing $1.85 million. The investment will result in additional cash flows of $525,000, $812,500, and $1,215,000 over the next three years. What is the payback period for this project?
Question 8: Monroe, Inc., is evaluating a project. The company uses a 13.8 percent discount rate for this project. Cost and cash flows are shown in the table. What is the NPV of the project?
Year Project
0 ($11,368,000)
1 $ 2,127,590
2 $ 3,787,552
3 $ 3,300,650
4 $ 4,115,899
5 $ 4,556,424