1. Discounted cash flow techniques automatically take into account recovery of t
ID: 2592553 • Letter: 1
Question
1. Discounted cash flow techniques automatically take into account recovery of the initial investment. True or False?
Respass Corporation has provided the following data concerning an investment project that it is considering:
determine the appropriate discount factor(s) using the tables provided.
The net present value of the project is closest to:
Multiple Choice
$516
$67,000
$(5,776)
$160,516
3. Crockin Corporation is considering a machine that will save $9,000 a year in cash operating costs each year for the next six years. At the end of six years it would have no salvage value. If this machine costs $33,165 now, the machine's internal rate of return is closest to (Ignore income taxes.):
Multiple Choice
18%
17%
19%
16%
2. Initial investment $ 160,000 Annual cash flow $ 54,000 per year Salvage value at the end of the project $ 11,000 Expected life of the project 4 years Discount rate 15 %Explanation / Answer
1 True, Discounted cash flow techniques automatically take into account recovery of the initial investment 2 Present value of Annual cash flow 154170 =54000*2.855 Present value of Salvage value 6292 =11000*0.572 Total present value 160462 Less: Initial investment 160000 Net present value 462 Net present value is closest to Option 1 $516 3 PV factor for internal rate of return=33165/9000=3.685 Internal rate of return = 16%
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