Essay on Net Present Value and Percent - 2231 Words

Fin 3320 Practice Questions1 – Total Course 1. Your wealthy uncle has set up a special account that will give you $500,000 on your 35th birthday. Assuming you are age 21 (thus 14 years from receiving this), what is the present value of this gift if the appropriate discount rate is 8.0%? (Ch5) a. $170,231 b. $282,449 c. $442,619 d. $191,206 e. $734,664 2. You need $10,900 for the down payment on a new car. You presently have $5,000 in savings for which you expect to earn 6% (annual rate, compounded monthly). If you deposit a further $500 each month to this account, how long, approximately, before you will accumulate enough to meet your down payment requirement? (Ch6) a. 17.6 Years b. 8 Months c. 11 Months d. 16 Months e. 1.84 Years 3. Which†¦show more content†¦Dividends are expected to grow at 25% rate for the next 3 years, with the growth rate then leveling at a constant 4% thereafter. The required return is 12% and the company just paid a $2.50 annual dividend. What is the current share price? (Ch 8) a. $34.92 b. $54.56 c. $68.14 d. $92.12 e. $126.21 3 14. You are considering two independent projects both of which have been assigned a discount rate of 14% percent. Based on the project NPV, what is your recommendation concerning these projects? (Ch 9) Year 0 1 2 a. b. c. d. e. Project A Cash Flow -$40,000 $22,000 $28,000 Year 0 1 2 Project B Cash Flow -$39,000 $28,000 $21,000 You should accept both projects. You should reject both projects. You should accept project A and reject project B. You should accept project B and reject project A. You should accept project A and be indifferent to project B. 15. Referring to the above question and table, if the projects under consideration are mutually exclusive, then what would your answer be? (Ch 9) a. b. c. d. e. You should accept both projects. You should reject both projects. You should accept project A and reject project B. You should accept project B and reject project A. You should accept project A and be indifferent to project B. 16. Drake Builders, Inc. purchased a lot in Tucson, Arizona 10 years ago at a cost of $380,000. At the time of the purchase, the company spent $15,000 to level the lot and another $20,000 to install storm drains. Today, that lotShow MoreRelatedCase02 Piedmont1133 Words   |  5 Pages12, 14, and 16 percent affect the project’s feasibility? Figures 6 – 10 provide suggested answers for this question. The answers for this question assume a useful life of 5 years. Using a discount rate of 8 percent, the net present value of all benefits is $1,732,836.16; the net present value of all costs is $1,640,384.79; the overall net present value is $92,451.36, and the project breaks even in approximately 3.84 years. Using a 10 percent discount rate, the net present value of all benefitsRead MoreVictoria Chemicals Plc B Merseyside And Rotterdam Projects Essay1334 Words   |  6 Pagescapital budgeting issues, which include, among other things, the identification of relevant cash flows, the critical assessment of a capital-investment rating system, the classic â€Å"cross-over† problem in the project agree rankings based on the net present value (NPV) and internal rate of return (IRR). his is an analysis of the two discounted cash flows that will be used in summarizing the financial impact that this capital improvement to the polypropylene line will have on the Rotterdam business volumeRead Morech9 rev answers 951 Words   |  4 Pages400 and a market value of $32,600. What is the difference between these two values called?   A.  net present value B.  internal return C.  payback value D.  profitability index E.  discounted payback 3.  The length of time a firm must wait to recoup the money it has invested in a project is called the:   A.  internal return period. B.  payback period. C.  profitability period. D.  discounted cash period. E.  valuation period. 5.  A projects average net income divided by its average book value is referred to asRead MoreThe North Sea Oil Company1600 Words   |  7 PagesTherefore, this portfolio project will address about the North Sea Oil Company’s proposed capital budgeting projects by using capital budgeting techniques to calculate and evaluate the company’s weighted average cost of capital, payback period, net present value, and internal rate of return from the given case information because calculating the capital structure based on the assumption the projects are implemented will give the investors either positive or negative signals. Weighted Average CostRead MoreNet Present Value and Washington State University740 Words   |  3 PagesWashington State University Finance 325 Practice Problems 1. What is the net present value of a project with the following cash flows and a required return of 12 percent? Year 0 1 2 3 Cash Flow -$28,900 $12,450 $19,630 $ 2,750 2. What is the net present value of a project that has an initial cash outflow of $12,670 and the following cash inflows? The required return is 11.5 percent. Year 1 2 3 4 Cash Inflows $4,375 $ 0 $8,750 $4,100 3. A project will produce cash inflows of $1,750Read MoreFin 571 Week 5 Connect Problems1026 Words   |  5 Pages1. The difference between the present value of an investment?s future cash ï ¬â€šows and its initial cost is the: †¢ net present value. †¢ internal rate of return. †¢ payback period. †¢ proï ¬ tability index. †¢ discounted payback period. 2. Which statement concerning the net present value (NPV) of an investment or a ï ¬ nancing project is correct? †¢ A ï ¬ 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 equalRead MoreEssay Capital Budgeting935 Words   |  4 Pages Consequently, it was necessary to consider an alternative solution. The proposal below provides a detailed explanation of all options including an alternative solution. Explanation: Option A and Option B The city has required a return of 12 percent and a critical acceptance level of 2.75 years. While neither project meets all critical, Option B does meet the internal rate of return. In determining the payback period, the formula used included total capital costs minus benefits. The total capitalRead MoreBuying An Outdoor Smoker Industry1238 Words   |  5 Pagesapproximately one million nine hundred seventy thousand and fifty six dollars. Based on these net present values the alternative of purchasing an outdoor grill would be recommended. This is due to the fact that the NPV for this alternative was positive, well the other alternatives NPV was negative. When choosing investment projects based on the NPV a positive value is always choose over a negative value. If the alternatives where independent of each other and the funding was available it wouldRead MoreInvestment Detective868 Words   |  4 Pageshistorical data from other capital budgeting analysts in the firm, we deemed a ten percent discount rate as an appropriate figure for our calculations. The analytical criteria in which we feel we gives us the best results to help us choose the top four projects are Net Present Value, Internal Rate of Return, and the Payback Period calculation. We are basing our rankings solely on the results we receive from our Net Present Value calculations because we feel this method to be the most consistent and itRead MoreEssay about Rock Creek Golf Club1510 Words   |  7 Pagesgasoline-powered golf carts. RCGC would need to obtain a loan for $89,600 at an eight percent interest rate for five years with a payment due at the end of each year in order to fund the purchase. A payment in the amount of $22,441 will be due at the end of each year for five years (the duration of the loan). Total interest paid will be $22,604 over the course of the loan. When you factor in the eight percent annual interest over the course of five years, the 40 golf carts will cost a total of