Multiple Choice - Capital Budgeting
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4. As a financial analyst, you've been assigned to evaluate a project for your firm that requires an initial investment of $200,000, is expected to last for 10 years, and which is expected to produce aftertax cash flows of $44,503 per year. If your firm's cost of capital is 14%, will you recommend the project be accepted or rejected?
a. Accept; the project has a positive NPV
b. Reject; the project has a negative NPV
c. Can't tell without further information
5. What is the Internal Rate of Return (IRR) for your firm that requires an initial investment of $200,000, is expected to last for 10 years, and which is expected to produce after-tax cash flows of $44,503 per year if your firm's cost of capital is 14%?
a. 8%
b. 12%
c. 14%
d. 18%
e. 5%
6. The Seattle Corporation has been presented with an investment opportunity which will yield cash flows of $30,000 per year in Years 1 through 4, $35,000 per year in Years 5 through 9, and $40,000 in Year 10. This investment will cost the firm $150,000 today, and the firm's cost of capital is 10 percent. Assume cash flows occur evenly during the year, 1/365th each day.
What is the payback period for this investment?
a. 5.23 years
b. 4.86 years
c. 4.00 years
d. 6.12 years
e. 4.35 years
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Solution Summary
This short solution answers 3 multiple choice related to capital budgeting with clear, concise calculations or worded explanation where necessary.
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4 - a
Accept; the project has a positive NPV ( NPV is $ ...
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