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NPV, PV, and cash flows

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Multiple choice questions for NPV, PV and cash flows.

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This solution assists in responding to questions regarding NPV, PV, and cash flows.

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  • NPV

    WACC: 10.00% Year:0 1 2 3 4 Cash flows:-$1,000 $400 $405 $410 $415 NPV of a project is calculated as Sum of PV of cash flows - initial investment PV of cash flows is obtained by discounting the cash flows PV of cash flows = 400/1.1 + 405/

  • Net Present Value Method Problem

    PV of cash flows = 115,014.49 NPV = 115,014.49-110,000=5,014.49 Since the NPV is positive the project can be undertaken The solution explains how to calculate the net present value and make the accept/reject decision

  • Change in NPV: Changed WACC

    At 7%, PV of cash flows = 500/1.07 + 520/1.07^2 + 540/1.07^3 = 1,362.28 NPV = 1,362.28-1,000 = 362.28 At 10%, PV of cash flows = 500/1.1 + 520/1.1^2 + 540/1.1^3 = 1,290.01 NPV = 1,290.01-1,000 = 290.01 Change in NPV = 362.28-290.01 = $72.27

  • Calculating the NPV for each of the given projects

    assume year end cash flows Future Value=FV=0 We can use PV function in MS Excel to get PV of cash inflows..

  • Which investment to accept

    We should calculate the NPV of each investment and choose the one with the higher NPV NPV = PV of cash flows - initial investment Project A - The cash flows are $4,000 per year for 10 years.

  • NPV

    e. $295.89 NPV = PV of cash flows - initial investment The discounting rate is 10% PV of cash flows = 500 X PVIFA (3,10%) = 1,243.43 (since the cash flows are an annuity) Initial investment = $1,000 NPV = 1,243.43-1,000=$243.43 The solution explains

  • Net present value and profitability index

    Solution: NPV = PV of cash flows - initial investment Profitability Index = PV of cash flows/initial investment To calculate the PV of cash flows discount the cash flows by the return on investment.

  • Net present value and profitability index

    The PV of cash flows is 3,000X5.650 = 16,950 NPV = 16,950-20,000 = -3,050 Profitability index = PV of cash flows/initial investment = 16,950/20,000 = 0.8475 Since the NPV is negative and the PI is less than 1, the project is not acceptable The solution

  • Capital budgeting, equipment decision

    NPV = PV of cash flows - initial investment The initial investment = $320,000 We are given the cash flows over the life of the equipment. We discount these cash flows and sum them to get the PV of cash flows.

  • NPV

    NPV = PV of cash flows - initial investment The cash flows are $10,000 a year for 7 years and the required return is 15%. Since the cash flows are an annuity, we can use the PVIFA table to get the PV factor.

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