1) A firm is evaluating a proposal which has an initial investment of $50,000 an
ID: 2799300 • Letter: 1
Question
1) A firm is evaluating a proposal which has an initial investment of $50,000 and has cash flows of $15,000 per year for five years. The payback period of the project is- A) 1.5 years B) 2 years C) 3.3 years D) 4 years 2) What is the payback period for Tangshan Mining company's new project if its initial after-tax cost is $5,000,000 and it is expected to provide after-tax operating cash inflows of S1,800,000 in year 1, $1,900,000 in year 2, $700,000 in year 3 and S1,800,000 in year 4? A) 4.33 years B) 3.33 years C) 2.33 years D) 1.33 years 3) A firm can accept a project with a net present value of zero because A) the project would maintain the wealth of the firm's owners B) the project would enhance the wealth of the firm's owners C) the D) the project would enhance the earnings of the firm project would maintain the earnings of the firm What is the NPV for a project if its cost of capital is 0 percent and its initial after-tax cost is $5,000,000 and it is expected to provide after-tax operating cash inflows of S1,800,000 in year 1 1,900,000 in year 2, $1,700,000 in year 3, and S1,300,000 in year 4? A) $1.700,000 B) S371,764 C) S137,053 D) $6,700,000 5. A project requires an investment of $2,500 and has a net present value of S430. If the IRR is 10%, what is the profitability index for the project? A) 0.25 B) 2.33 C) 0.70 D) 1.17 6) What is the IRR for the following project if its initial after-tax cost is $5,000,000 and it is expected to provide after-tax operating cash inflows of $1,800,000 in year 1, S1,900,000 in year 2, $1,700,000 in year 3, and S1,300,000 in year 4? A) 15.57% B) 0.00% C) 13.57% D) 12.25%Explanation / Answer
Payback period = 3.3 years (C)
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Payback period is the time it takes for a project to return the initial capital, Payback period is different than discounted payback in which cash flows are discounted first with required rate of return/discount rate, in payback period method cash flows are not discounted.
Payback period = Initial cost/ annual return
= 50000/15000
= 3.3 years
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Hope this answer your query.
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