Share
Explore BrainMass

Time Value of Money/Capital Budgeting

1. Your brother has asked you to help him with choosing an investment. He has $5,000 to invest today for a period of two years. You identify a bank CD that pays an interest rate of 4.25 percent with the interest being paid quarterly. What will be the value of the investment in two years?
A) $5,434
B) $5,441
C) $5,107
D) $5,216

2. Jet, Inc., has net sales of $712,478 and accounts receivables of $167,435. What are the firm's accounts receivables turnover and days' sales outstanding?
A) 0.24 times; 78.5 days
B) 4.26 times; 85.7 days
C) 5.2 times; 61.3 days
D) None of the above

3. If your investment pays the same amount at the beginning of each year for a period of 10 years, the cash flow stream is called
A) a perpetuity.
B) an ordinary annuity.
C) an annuity due.
D) none of the above.

4. If your investment pays the same amount at the end of each year forever, the cash flow stream is called
A) a perpetuity.
B) an ordinary annuity.
C) an annuity due.
D) none of the above.

5. Your investment in a small business venture will produce cash flows that increase by 15 percent every year for the next 25 years. This cash flow stream is called
A) an annuity due.
B) a growing perpetuity.
C) an ordinary annuity.
D) a growing annuity.

6. Turnbull Corp. is in the process of constructing a new plant at a cost of $30 million. It expects the project to generate cash flows of $13,000,000, $23,000,000, and 29,000,000 over the next three years. The cost of capital is 20 percent.

- What is the net present value of this project? (Round to the nearest million dollars.)
A) $10 million
B) $12 million
C) $14 million
D) $16 million

- What is the internal rate of return that Turnbull can earn on this project? (Round to the nearest percent.)
A) 41%
B) 42%
C) 43%
D) 44%

Solution Preview

Please refer attached file for better clarity of formulas.

1.
Present Value=PV=($5,000)
Interest rate=RATE=4.25%/4=1.0625% per quarter
Number of periods=NPER=2*4=8 quarters
Type=0
Periodic Payment=PMT=0

FV=$5,441.15 =FV(D4,D5,D7,D3,D6)

Correct answer: B) $5,441

2.
Net sales= 712478
Accounts receivable=167435
Accounts receivable turnover=Net sales/Accounts receivable=4.26

DSO=(Accounts receivable/Net ...

Solution Summary

There are 6 problems related to capital budgeting techniques and time value of money concepts. Solutions are provided in MS Excel format.

$2.19