Multiple Choice Question 99 A project with a profitability index of 1.156 also h
ID: 2533590 • Letter: M
Question
Multiple Choice Question 99
A project with a profitability index of 1.156 also has net cash flows with a present value of $57800. The project’s internal rate of return was 10%. The initial investment was
$50000.
$55000.
$52020.
$66817.
Multiple Choice Question 53
Larkspur Company is considering buying a machine for $460000 with an estimated life of 10 years and no salvage value. The straight-line method of depreciation will be used. The machine is expected to generate net income of $4000 each year. The cash payback period on this investment is
57.50 years.
10.00 years.
9.20 years.
11.50 years.
Multiple Choice Question 57
Swifty Co. purchased some equipment 3 years ago. The company's required rate of return is 12%, and the net present value of the project was $(800). Annual cost savings were: $6000 for year 1; 4000 for year 2; and $2000 for year 3. The amount of the initial investment was
Present Value PV of an Annuity
Year of 1 at 12% of 1 at 12%
1 0.893 0.893
2 0.797 1.690
3 0.712 2.402
$10770.
$8808.
$10408.
$9170.
Explanation / Answer
Question 99
Profitability Index = Present Value of cash flows / Initial Investment
1.156 = $57,800 / Initial Investment
Initial Investment = $57800 / 1.156
Initial Investment = $50,000
Question 53
Depreciation = $460000 / 10 Years = $46,000
Net Income = $4,000
Cash Flow = Net Income + Depreciation
= $4,000 + $46,000
= $50,000
Cash payback period = Initial Investment / Cash Flow
= $4,60,000 / $50,000
= 9.2 Years
Question 57
Net Present Value = Present Value of cash flow – Initial Investment
- $800 = [ ($6000 x 0.893) + (4000 x 0.797 ) + (2000 x 0.712) ] - Initial Investment
-$800 = $ 9970 - Initial Investment
Initial Investment = $9970 + $800
Initial Investment = $10,770
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