2) What is the payback period for Tangshan Mining company\'s new project if its
ID: 2799307 • Letter: 2
Question
2) What is the payback period for Tangshan Mining company's new project if its initial after-tax cost is S5,000,000 and it is expected to provide after-tax operating cash inflows of 1,800,000 in year 1, $1,900,000 in year 2, $700,000 in year 3, and $1,800,000 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 project would maintain the earnings of the fimm D) the project would enhance the earnings of the firm 4) What is the NPV for a project if its cost of capital is 0 percent and its initial after-tax cost is S5,000,000 and it is expected to provide after-tax operating cash inflows of S1,800,000 in year 1, S1,900,000 in year 2, S1,700,000 in year 3, and $1,300,000 in year 4? A) $1,700,000 B) S371,764 C) S137,053 D) S6,700,000 5. A project requires an investment of $2,500 and has a net present value of $430. 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 S1,800,000 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
Answer 2 is B.
Initial Investment = $5,000,000
Cash Flow Year 1 = $1,800,000
Cash Flow Year 2 = $1,900,000
Cash Flow Year 3 = $700,000
Cash Flow Year 4 = $1,800,000
Company will recover $4,400,000 in 3 years and remaining $600,000 will be recover in 4th year
Payback Period = 3 + $600,000/$1,800,000
Payback Period = 3.33 years
Answer 3 is A.
A firm would accept a project with a net present value of zero because the project would maintain the wealth of the firm’s owners.
Answer 4 is A.
Initial Investment = $5,000,000
Cash Flow Year 1 = $1,800,000
Cash Flow Year 2 = $1,900,000
Cash Flow Year 3 = $1,700,000
Cash Flow Year 4 = $1,300,000
NPV = -$5,000,000 + $1,800,000 + $1,900,000 + $1,700,000 + $1,300,000
NPV = $1,700,000
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