1A) A mutually exclusive project: Is independent of all alternative projects Is
ID: 2821904 • Letter: 1
Question
1A) A mutually exclusive project:
Is independent of all alternative projects
Is the first choice in a list of projects
Dependent on other projects
May preclude acceptance of alternative projects
1B) Alien Corp. has been considering building an adult resort on a site originally purchased as investment property. Alien paid a consultant $250,000 to determine whether the plan is feasible, and has recently found that the site is worth $2.5 MM. The original purchase price was $1 MM. If the expected outlay for building and staffing the resort is $4.5 MM, what is the Net Investment when running an NPV?
$7.25 MM
$7.0 MM
$5.75 M
$4.5 M
1C) What is the net present value (NPV) of the following project if the discount rate is 11%?
Initial outflow = $50,000
End of year one inflow = $15,000
End of year two inflow = $22,000
End of year three inflow = $30,000
$17,000.00
$3,304.95
$4,357.63
$9,168.49
1D) How many years will it take to payback an investment of $100,000 given annual end-of-year cash flows of: $25,000, $30,000, $35,000, $40,000, $55,000? (Use nominal dollars rather than discounted dollars in the payback calculation.)
3.25 years
3.50 years
4 years
3.75 years
a.Is independent of all alternative projects
b.Is the first choice in a list of projects
c.Dependent on other projects
d.May preclude acceptance of alternative projects
Explanation / Answer
A. a. Is independent of all alternative projects , mutually exclusive project does not depend on other projects
C. b. $3,304.95 ,
Present value of cash inflow:
Year Cash inflow PVF(11%, n year) Present value
1 $15,000 0.901 13515
2 22,000 0.812 17864
3 30,000 0.731 21930
53309
net present value (NPV) = 53309 - 50,000.
= 3309
D a. 3.25 years ,
Year cash flows Cumulative cash flow
1 25000 25000
2 30000 55000
3 35000 90000
4 40000 130000
5 55000 185000
Payback period = 3 years + [(100000 - 90000) / 40000]
= 3 years + 0.25 years
= 3.25 years
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