Quick Sale Real Estate Company is planning to invest in a new development. The cost of the project will be $23 million and is expected to generate cash flows of $14,000,000, $11,750,000, and $6,350,000 over the next three years. The company’s cost of capital is 20 percent. What is the internal rate of return on this project? (Round to the nearest percent.)
| Question 1 | 0 / 1 point |
Quick Sale Real Estate Company is planning to invest in a new development. The cost of the project will be $23 million and is expected to generate cash flows of $14,000,000, $11,750,000, and $6,350,000 over the next three years. The company’s cost of capital is 20 percent. What is the internal rate of return on this project? (Round to the nearest percent.)
Question options:
| 20% | ||||
| 24% | ||||
| 22% | ||||
| 28% | ||||
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| Initial investment = $23,000,000 Length of project =n= 3 years Required rate of return =k= 20% To determine the IRR, the trial-and-error approach can be used. Set NPV = 0. Try IRR = 21.6%. |
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| Question 2 | 0 / 1 point | |||
Muncy, Inc., is looking to add a new machine at a cost of $4,133,250. The company expects this equipment will lead to cash flows of $817,822, $863,275, $937,250, $1,019,610, $1,212,960, and $1,225,000 over the next six years. If the appropriate discount rate is 15 percent, what is the NPV of this investment?
Answer:
| 437,461 | |
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| Cost of new machine = $4,133,250
Length of project =n= 6 years Required rate of return =k= 15% -Cost+(CF/(1.15)^1)+(CF/)(1.15)^2)+(CF/(1.15)^3)+(CF/(1.15)^4)+(CF/(1.15)^5)+CF/(1.15)^6) |
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Question 3 |
0 / 1 point |
Given the following cash flows for a capital project, calculate the IRR using a financial calculator
| Year | ||||||
| 0 | 1 | 2 | 3 | 4 | 5 | |
| Cash Flows | ($50,467) | $12,746 | $14,426 | $21,548 | $8,580 | $4,959 |
Question options:
| 8.41% | ||||
| 8.05% | ||||
| 8.79% | ||||
| 7.9% | ||||
| Question 5 | 0 / 1 point | |||
Cortez Art Gallery is adding to its existing buildings at a cost of $2 million. The gallery expects to bring in additional cash flows of $520,000, $700,000, and $1,000,000 over the next three years. Given a required rate of return of 10 percent, what is the NPV of this project?
Question options:
| -$197,446 | ||||||
| $1,802,554 | ||||||
| $197,446 | ||||||
| -$1,802,554 | ||||||
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| Initial investment = $2,000,000 Length of project =n= 3 years Required rate of return =k= 10% Net present value = NPV |
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| Question 7 | 0 / 1 point | |||||
McKenna Sports Authority is getting ready to produce a new line of gold clubs by investing $1.85 million. The investment will result in additional cash flows of $525,000, $832,500, and $1,215,000 over the next three years. What is the payback period for this project?
Answer:
| 3 | ||
| Question 8 | ||
Monroe, Inc., is evaluating a project. The company uses a 13.8 percent discount rate for this project. Cost and cash flows are shown in the table. What is the NPV of the project?
Year Project
0 ($11,368,000)
1 $ 2,202,590
2 $ 3,787,552
3 $3,325,650
4 $ 4,115,899
5 $ 4,556,424
Answer:
| 445,100 | |
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| (-CF Year O)+(CF Year 1/(1+Rate)^1)+(CF Year 2/(1+Rate)^2)+(CF Year 3/(1+Rate)^3)+(CF Year 4/(1+Rate)^4)+CF Year 5/(1+Rate)^5) | |
