Finance Net Present Value Quiz

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To the nearest dollar, what is the net present value of a replacement project whose cash flows are -$104,000; $30,000; $69,000; and $55,000 for years 0 through 3, respectively? The firm has decided to assume that the appropriate cost of capital is 10%.

Select one:

A. $21,620

B. $19,654

C. $20,008

D. $30,999

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An example of a contingent product is:

Select one:

A. choosing between one of two manufacturing sites.

B. building a new manufacturing plant with optional waste recycling.

C. adding manufacturing capacity to a plant.

D. None of the above.

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Two projects have the same initial cost.
Project A has estimated cash flows of $1,000, $2,000, $3,000, $4,000 at the end of years 1 to 4 respectively.
Project B has estimated cash flows of $4,000, $3,000, $2,000, $1,000 at the end of years 1 to 4 respectively.
Which project will have the greater NPV assuming a positive discount rate?

Select one:

a. The NPV will be the same for both Project A and Project B

b. Project B

c. Project A

d. Cannot determine from the information given.

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Albury Company is adding a new assembly line at a cost of $8.5 million. The company expects the project to generate cash flows of $2 million, $3 million, $4 million, and $5 million over the next four years. Its cost of capital is 16 percent. What is the net present value of this project?

Select one:

A. $1,213,909

B. $905,888

C. $777,713

D. $645,366

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The cost of capital is:

Select one:

A. the minimum return that a capital budgeting project must earn for it to be accepted.

B. the maximum return a project can earn.

C. the return that a previous project for the company had earned.

D. none of the above.

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A company is in the process of constructing a new plant at a cost of $14 million. It expects the project to generate cash flows of $10 million, $7 million, and $10 million over the next three years. The cost of capital is 14.5 percent p.a. What is the net present value of this project? (in millions to three decimals)

Select one:

a. $6.735

b. $34.735

c. $4.109

d. $7.509

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Indicate whether True or False.

If we know that at rate i p.a. Project A has a greater NPV than Project B then we can conclude with certainty that at rate j p.a., where j is greater than i, Project A will also have a greater NPV.

Select one:

a. True

b. False

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The net present value (NPV):

Select one:

A. uses the discounted cash flow valuation technique.

B. will provide a direct measure of how much the company value will change because of the capital project.

C. is consistent with shareholder wealth maximisation goals.

D. all of the above.

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A company is considering an investment that will cost $753,000 and have a useful life of 4 years. The cash flows from the project are expected to be $543,000 per year in the first two years then $159,000 per year for the last 2 years. If the appropriate discount rate is 15.0 percent per annum, what is the NPV of this investment (to the nearest dollar)?

Select one:

a. $325214

b. $1831214

c. $361308

d. $388248

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Barcode Biz has invested in new machinery at a cost of $1,450,000. This investment is expected to produce cash flows of $640,000, $715,250, $823,330, and $907,125 over the next four years. What is the payback period for this project (rounded to two decimal places)?

Select one:

A. 2.12 years

B. 1.88 years

C. 4.00 years

D. 3.00 years.

 

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