1. Why the cash flow statement is considered an accurate indicator to evaluate a company.
2. The importance of measuring and analyzing the potential risk of an investment, to make an informed decision.
3. Assume a project has the following expected cash flows:
Year 0: ($350,000)
Year 1: $125,000
Year 2: $130,000
Year 3: $170,000
Year 3: $200,000
What is the project’s payback (payback period)?
A. 2.20 years
B. 2.45 years
C. 2.54 years
D. 2.62 years
E. 3.05 years
4. Chronic Pain Clinic has estimated the following cash flows associated with a new project. The project cost of capital (discount rate) is 9 percent.
Year 0: ($850,000)
Year 1: $400,000
Year 2: $400,000
Year 3: $400,000
What is the project’s internal rate of return?
A. 18.5 percent
B. 19.4 percent
C. 20.6 percent
D. 23.8 percent
E. 24.4 percent