Highfield Co. is considering a project that will require an initial cash outlay
ID: 2759882 • Letter: H
Question
Highfield Co. is considering a project that will require an initial cash outlay of $78,120 today. The project has a five-year life and will generate cash flows of $20,608 every year for next five years. The required rate of return is 15%. What is the payback period? a. 4.6218 b. 2.8706 c. 3.9349 d. 3.7908
B. Given the information in Question 1, what is the net present value? a. $9,038.79 b. -$9,038.79 c. $3,790.80 d. $7,812.03
C. Given the information in Question 1, what is the internal rate of return? a. 10% b. 8% c. 6% d. 12%
D. Given the information in Question 1, what is the profitability index? a. 1.8843 b. -0.8843 c. 0.8843 d. -1.8843
E. Given the information in Question 1, what is the maximum price that Highfield has to pay if the target profitability index is 1.2? a. $65,248.13 b. $82,098.45 c. $78,120 d. $57,567.68
F. Given the information in Question 1, what is the minimum annual cash flow that project has to generate in order to accept the project? a. $20,608 b. $23,304.41 c. $22,403.52 d. $19,376.93
Explanation / Answer
Answer:A d. 3.7908
Payback Period=78120/20608= 3.7908 years
Answer:B b. -$9,038.79
Answer:C a.10%
Answer:d PI=PV of cash inflow/PV of cashoutflow
=69081.21/78120
=0.8843
Discount rate 15% Year Cash Flow ($) 0 -78120 1 20608 2 20608 3 20608 4 20608 5 20608 NPV -9038.79Related Questions
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