1. You are using a net present value profile to compare Project A and B, which a

Question

1. You are using a net present value profile to compare Project A and B, which are mutually exclusive. Which one of the following statements correctly applies to the crossover point between these two?

a. The internal rate of return for Project A equals that of Project B, but generally does not equal zero.

b. The internal rate of return of each project is equal to zero.

c. The net present value of each project is equal to zero.

d. The net present value of Project A equals that of Project B, but generally does not equal zero.

e. The net present value of each project is equal to the respective project's initial cost.

2.

What is the net present value of a project with the following cash flows and a required return of 14 percent?

a. $13,721.78

b. -$17,362.71

c. -$13,353.25

d. -$13,721.78

e. $13,353.25

3.

It will cost $3,700 to acquire a small ice cream cart. Cart sales are expected to be $2,900 a year for four years. After the four years, the cart is expected to be worthless as that is the expected remaining life of the cooling system. What is the payback period of the ice cream cart?

a. 5.10 years

b. 3.14 years

c. 1.28 years

d. 0.32 years

e. 0.78 years

What is the net present value of a project with the following cash flows and a required return of 14 percent?

Explanation / Answer

You are using a net present value profile to compare Project A and B, which are mutually exclusive. Which one of the following statements correctly applies to the crossover point between these two? a. The internal rate of return for Project A equals that of Project B, but generally does not equal zero. b. The internal rate of return of each project is equal to zero. c. The net present value of each project is equal to zero. d. The net present value of Project A equals that of Project B, but generally does not equal zero. e. The net present value of each project is equal to the respective project's initial cost. 2. What is the net present value of a project with the following cash flows and a required return of 14 percent?     Year Cash Flow 0 –$60,300 1 16,300 2 38,530 3 3,900 a. $13,721.78 b. -$17,362.71 c. -$13,353.25 d. -$13,721.78 e. $13,353.25 Year Cash Flow PV @14% Present Value 0 -$60,300.00 1 -$60,300.00 1 $16,300.00 0.877193 $14,298.25 2 $38,530.00 0.769468 $29,647.58 3 $3,900.00 0.674972 $2,632.39 NPV -$13,721.78 3 It will cost $3,700 to acquire a small ice cream cart. Cart sales are expected to be $2,900 a year for four years. After the four years, the cart is expected to be worthless as that is the expected remaining life of the cooling system. What is the payback period of the ice cream cart? a. 5.10 years b. 3.14 years c. 1.28 years d. 0.32 years e. 0.78 years Payback period = Intial investment/Annual cash flows; $3700/$2900 1.28 years

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