21) Fox, Inc. is considering a five-year project that has initial after-tax outl

Question

21) Fox, Inc. is considering a five-year project that has initial after-tax outlay or after-tax

      cost of $170,000. The future after-tax cash inflows from its project for years 1

      through 5 are $45,000 for each year. Fox uses the net present value method and

      has a discount rate of 11.25%. Will Fox accept the project?

A) Fox accepts the project because the NPV is about $165,275.

B) Fox rejects the project because the NPV is about -$154,725.

C) Fox accepts the project because the NPV is about $5,455.

D) Fox rejects the project because the NPV is about -$4,725.

22) Consider the following four-year project. The initial outlay or cost is $180,000. The

      respective cash inflows for years 1, 2, 3 and 4 are: $100,000, $80,000, $80,000 and

      $20,000. What is the discounted payback period if the discount rate is 11%?

A) About 1.667 years

B) About 2.135 years

C) About 2.427 years

D) About 2.000 years

23) Lennon, Inc. is considering a five-year project that has an initial outlay or cost of

      $80,000. The respective future cash inflows from its project for years 1, 2, 3, 4 and 5

      are: $15,000, $25,000, $35,000, $45,000, and $55,000. Lennon uses the internal

      rate of return method to evaluate projects. What is Lennon's IRR?

A) The IRR is about 26.16%

B) The IRR is less than 22.50%

C) The IRR is over 26.50%

D) The IRR is about 24.16%

24) Berra, Inc. is currently considering an eight-year project that has an initial outlay or

      cost of $120,000. The future cash inflows from its project for years 1 through 8 are

      the same at $30,000. Berra has a discount rate of 11%. Because of capital rationing

     (shortage of funds for financing), Berra wants to compute the profitability index (PI)

      for each project. What is the PI for Berra's current project?

A) About 1.31

B) About 1.29

C) About 1.33

D) About 1.39

25) Find the Modified Internal Rate of Return (MIRR) for the following annual series of

      cash flows, given a discount rate of 10.50%: Year 0: -$75,000; Year 1: $15,000;

     Year 2: $16,000; Year 3: $17,000; Year 4: $17,500; and, Year 5: $18,000.

A) About 7.35%

B) About 6.35%

C) About 7.88%

D) About 6.88%

26) Acme, Inc. is considering a four-year project that has an initial outlay or cost of

      $100,000. The respective future cash inflows from its project for years 1, 2, 3 and 4

      are: $50,000, $40,000, $30,000 and $20,000. Will it accept the project if it

Explanation / Answer

21. D

22. C

23. A

24. B

26. B

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