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Multiple Choice - Capital Budgeting

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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4 - a
Accept; the project has a positive NPV ( NPV is $ ...

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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