Question 20 (1 point) Which of the following basic questions is central to solvi

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Question 20 (1 point)

Which of the following basic questions is central to solving for net present value?

Question 20 options:

"Does this project have positive cash flow streams extending beyond the payback period?"

"Does the project earn at least ____% return? Yes or no?"

"How long until I get my money back?"

"Exactly what rate of return does the project earn?"

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Question 21 (1 point)

If you are evaluating a project that has a cost of capital of 15% and your analysis results in a positive NPV, which of the following statements is true?

Question 21 options:

There is no relationship between the IRR and the NPV.

The IRR is higher than 15%.

The IRR is lower than 15%.

The IRR is exactly equal to 15%.

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Question 22 (1 point)

A project will cost $15,000 in total investment. The cash flows are as follows: Year 1--$5,000; Year 2--$3,000; Year 3--$6,000; Year 4--$8,000; Year 5--$7,000. Assume the cash flows are distributed evenly throughout the year. Calculate the exact payback period.

Question 22 options:

3 years

3.13 years

3.50 years

4 years

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Question 23 (1 point)

You are considering an investment in a machine that will cut your company's costs significantly. The cash flows are as follows: Investment amount: $100,000. Cash flows: Year 1--$25,000; Year 2--$45,000; Year 3--$50,000; Year 4--$60,000. Given a cost of capital of 17%, calculate the NPV of the project.

Question 23 options:

500.09

5,089.97

0.00

17,478.16

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Question 24 (1 point)

A project has the following cash flows: Investment amount: $50,000; Year 1--$12,000; Year 2--$19,000; Year 3--$30,000; Year 4--10,000. Calculate the IRR.

Question 24 options:

11.92%

13.77%

15.23%

16.03%

A)

"Does this project have positive cash flow streams extending beyond the payback period?"

B)

"Does the project earn at least ____% return? Yes or no?"

C)

"How long until I get my money back?"

D)

"Exactly what rate of return does the project earn?"

Explanation / Answer

1. Does the project have postive cash flow streams extending beyond the payback period.

2.

Positive NPV indicates that the return is higher than cost

IRR is higher than 15%

3.

cummulative cashflow is positive after 3rd year

payback period = 3+1000/8000 = 3.125 = 3.13

4.

5.

IRR is where NPV is equal to zero.

comput IRR by calculating the rate at which npv is zero.

this can be calculated by using goal seek function in excel.

IRR = 15.23%

0 -15000 -15000 1 5000 -10000 2 3000 -7000 3 6000 -1000 4 8000 7000 5 7000 14000

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