FIN 571 Week 5 Connect Problems

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FIN 571 Week 5 Connect Problems

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• 1). The difference between the present value of
  an investment?s future cash ?ows and its initial
  cost is the
• net present value.
• internal rate of return.
• payback period.
• pro?tability index.
• discounted payback period.

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• 2). Which statement concerning the net present
  value (NPV) of an investment or a ?nancing
  project is correct?
• A ?nancing project should be accepted if, and
  only if, the NPV is exactly equal to zero.
• An investment project should be accepted only if
  the NPV is equal to the initial cash ?ow.
• Any type of project should be accepted if the NPV
  is positive and rejected if it is negative.
• Any type of project with greater total cash
  in?ows than total cash out?ows, should always be
  accepted.
• An investment project that has positive cash ?ows
  for every time period after the initial
  investment should be accepted.
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•  
• 3). The primary reason that company projects with
  positive net present values are considered
  acceptable is that
• they create value for the owners of the ?rm.
• the project's rate of return exceeds the rate of
  in?ation.
• they return the initial cash outlay within three
  years or less.
• the required cash in?ows exceed the actual cash
  in?ows.
• the investment's cost exceeds the present value
  of the cash in?ows.

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•  
• 4). Accepting a positive net present value (NPV)
  project
• indicates the project will pay back within the
  required period of time.
• means the present value of the expected cash ?ows
  is equal to the projects cost.
• ignores the inherent risks within the project.
• guarantees all cash ?ow assumptions will be
  realized.
• is expected to increase the stockholders value
  by the amount of the NPV.
•  
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• 5).The net present value method of capital
  budgeting analysis does all of the following
  except
• incorporate risk into the analysis.
• consider all relevant cash ?ow information.
• use all of a project's cash ?ows.
• discount all future cash ?ows.
• provide a speci?c anticipated rate of return.

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• 6). What is the net present value of a project
  with an initial cost of 36,900 and cash in?ows
  of 13,400, 21,600, and 10,000 for Years 1 to
  3, respectively? The discount rate is 13 percent.
• -287.22
• -1,195.12
• -1,350.49
• 204.36
• 797.22
•  
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• 7).Maxwell Software, Inc., has the following
  mutually exclusive projects.
• Year Project A Project B
• 0 17,000 20,000
• 1 10,500 11,500
• 2 7,000 8,000
• 2,600 7,000
• a-1.Calculate the payback period for each
  project. (Do not round intermediate calculations
  and round your answers to 3 decimal places, e.g.,
  32.161.)
• Payback period
• Project A ____years
• Project B ____years
• a-2. Which, if either, of these projects should
  be chosen?
• Project __

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  b-1. What is the NPV for each project if the
appropriate discount rate is 15 percent? (A
negative answer should be indicated by a minus
sign. Do not round intermediate calculations and
round your answers to 2 decimal places, e.g.,
32.16.) NPV Project A ____ Project B
____ b-2. Which, if either, of these
projects should be chosen if the appropriate
discount rate is 15 percent? Project __ Final
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8). Flatte Restaurant is considering the purchase
of a 9,900 soufflé maker. The soufflé maker has
an economic life of six years and will be fully
depreciated by the straight-line method. The
machine will produce 1,950 soufflés per year,
with each costing 2.35 to make and priced at
5.20. Assume that the discount rate is 14
percent and the tax rate is 40 percent. What is
the NPV of the project? (Do not round
intermediate calculations and round your answer
to 2 decimal places, e.g., 32.16.) NPV
_____ Should the company make the
purchase? Yes/No   Click here to download
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•  9). The Best Manufacturing Company is
  considering a new investment. Financial
  projections for the investment are tabulated
  here. The corporate tax rate is 38 percent.
  Assume all sales revenue is received in cash, all
  operating costs and income taxes are paid in
  cash, and all cash flows occur at the end of the
  year. All net working capital is recovered at the
  end of the project.
• Year 0 Year 1 Year 2 Year 3 Year 4
• Investment 29,000
• Sales revenue
  15,000 15,500 16,000 13,000
• Operating costs
  3,200 3,300 3,400 2,600
• Depreciation
  7,250 7,250 7,250 7,250
• Net working capital spending 350 400
  450 350 ?

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  Compute the incremental net income of the
investment for each year. (Do not round
intermediatecalculations.) Year 1
Year 2 Year 3 Year
4 Net income ____ _____
_____ ____ Compute the
incremental cash flows of the investment for each
year. (Do not round intermediatecalculations. A
negative answer should be indicated by a minus
sign.) Year 0 Year 1
Year 2 Year 3
Year 4 Cash flow _____
_____ _____ _____
_____ Suppose the appropriate discount
rate is 12 percent. What is the NPV of the
project? (Do not roundintermediate calculations
and round your answer to 2 decimal places, e.g.,
32.16.) NPV _____
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the class are as follows   FIN 571 Final Exam
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571 Week 5 Quiz FIN 571 Week 6 Quiz FIN 571 Week
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Week 4 Connect Problems  FIN 571 Week 5 Connect
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