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How you get the result

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Please show how you get the result. (Formula and step);Thank you!;------------;Quiz 6;Chpt. 7,8,9 Capital Budgeting;1. You are evaluating purchasing the rights to a project that will generate after tax expected cash flows of $90,000 at the end of each of the next five years, plus an additional $1,000,000 at the end of the fifth year as the final cash flow. You can purchase this project for $950,000. If your firm's cost of capital (aka required rate of return) is 15%, what is the NPV of this project?;a. 500,000;b. 950,000;c. -106,000;d. -151,000;e. insufficient information to estimate an NPV;2. You are evaluating purchasing the rights to a project that will generate after tax expected cash flows of $90,000 at the end of each of the next five years, plus an additional $1,000,000 at the end of the fifth year as the final cash flow. You can purchase this project for $950,000. At this price, what rate of return would you earn on the investment (aka what is the internal rate of return)?;a. 10.3%;b. 7.7%;c. 9.6%;d. 52.6% ((90*5+1000)/950 -1);e. 15%;f. insufficient information to estimate a return rate;3. If accepting 1 project implies that you can NOT also accept another alternative project, we would say these 2 projects are;a. mutually exclusive;b. independent;c. profitable;d. synergistic;e. none of the above;4. You are considering the purchase of an investment that would pay you $5,000 per year for Years 1 5, $3,000 per year for Years 6 8, and $2,000 per year for Years 9 and 10. If you require a 14 percent rate of return, and the cash flows occur at the end of each year, then what is the MOST you would be willing to pay for this investment?;a. $15,819.27;b. $21,937.26;c. $32,415.85;d. $38,000.00;e. $52,815.71;5. When evaluating whether to proceed with a project, the firm should consider all of the following factors EXCEPT which one? (i.e., Which is a "not relevant" versus " relevant" cash flow?);a. changes in working capital attributable to the project;b. sunk costs already incurred;c. the current market value of any equipment to be sold and replaced;d. the resulting difference in depreciation if the project involves a replacement decision;e. all of the above should be considered.;6. While doing a capital budgeting analysis you realized that the project would require an increase in inventory of $8000. You should;a. ignore the inventory requirement because it is not an operating cash flow;b. record the $8000 at time zero as an additional benefit of taking the project;c. remember to depreciate the $8000 over the depreciable life of the project;d. record the $8000 at time zero as an additional cost of taking the project;e. none of the above are accurate;7. Royal Dutch Petro (RDP) is considering a new equipment purchase that would replace some existing equipment. The old equipment has a Book Value (BV) of $400 thousand and RDP estimates that the equipment could be sold for ONLY $150 thousand. What is the After Tax Salvage Value (ATSV) of the old equipment that RDP should use in their capital budgeting analysis? Assume the tax rate = T= 35%.;a. 0, since the sale of old equipment has nothing to do with analysis of new equipment being purchased;b. 87.5 thousand;c. 62.5 thousand;d. -250 thousand;e. 237.5 thousand;8. All of the following are common cash flow items to be considered at TIME ZERO, except;a. initial purchase costs of assets;b. net cashflow from sale of any old equipment being replaced;c. installation costs;d. working capital investment (such as inventory);e. depreciation tax shield from new assets being purchased;9. If you earn a 10% nominal return on an investment, are you really 10% more wealthy?;a. No, because there may be inflation, which causes your real return to be less;b. No, because if inflation = 0, then your real return is less;c. Yes, because you really have 10% more dollars;d. Yes, because inflation does NOT effect your real wealth;e. Yes, because nominal returns are the returns widely published & quoted in the press;10. Which of the following terms addresses the problem when introducing a new product line could steal sales away from an existing product line?;a. Enhancement;b. Cannibalization;c. Payback;d. Discounting;e. None of the above

 

Paper#25852 | Written in 18-Jul-2015

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