1. Keira Knightley Company buys a piece of equipment for $36,442 that will last for 7 years. The equipment will generate cash flows of $7,000 per year and will have no salvage value at the end of its life. Ignore taxes unless told to include them. What is the net present value using a 12% cost of capital?
A $2,681
B. $4,495
C. ($2,681)
D. ($4,495)
2. What is the internal rate of return?
A. 14%
B. 12%
C. 10%
D. 8%
3. Using straight-line depreciation over the life of the asset, what is the after tax cash flow in year 3? Assume a 30% tax rate and that the original cash flow was before tax.
A. $4,900
B. $1,794
C. $1,256
D. $6,462
4. What is the payback period?
A. 5.2 years
B. 5.2%
C. 520%
D. 5.2 times