Question

1. An investment that costs $6,900 will produce annual cash flows of $3,140 for a period...

1.

An investment that costs $6,900 will produce annual cash flows of $3,140 for a period of 4 years. Given a desired rate of return of 8%, the investment will generate a present value index of (Do not round your PV factors and intermediate calculations):

2.197.

1.507.

1.971.

0.664.

2.

Mountain Brook Company is considering two investment opportunities whose cash flows are provided below:

Year Investment A Investment B
0 $ (16,750)         $ (11,100)        
1 5,630         5,630        
2 5,630         4,560        
3 5,630         3,770        
4 4,560         1,840        

   
The company's hurdle rate is 10%. What is the present value index of Investment A? (Do not round your PV factors and intermediate calculations.)

1.07

1.00

1.02

None of these answers is correct.

3.

What amount of cash must be invested today in order to have $47,000 at the end of one year assuming the rate of return is 7%? (Do not round your PV factors.)

$43,710.00

$43,925.23

$32,900.00

$41,051.62

4.

Paul Company is considering purchasing a capital investment that is expected to provide annual cash inflows of $12,000 per year for 3 years. Assuming that the required rate of return is 10%, what is the present value of these cash inflows? (Do not round PV factors and intermediate calculations. Round your final answer to the nearest dollar.)

$9,016

$28,822

$29,842

$27,047

Homework Answers

Answer #1

1) solution to que no 1 : option B (1.507)

Justification

Cashinflow 3140 per yr * Pvf 8%, 4yrs(3.3121) =10400

Cashoutflow given 10400

Therefore present value index = pv cashinflow  

Pv cashoutflow

10400/6900 = 1.507

Solution to que no 2 : option c) 1.02

Cash outflow investment A is (16750)

Cashinflow for 4 yrs

5630* pvf 10% fr 3yrs(2.4869) + 4560*pvf yr 4th yr 0.6830 =17115.164

Therfore present value index = pv cash inflow/pv cash outflow

= 17115.164/16750

= 1.02(option c)

Solution to que no 3 : option b) 43,925.23

Future value = present value * (1+r)n

47000= pv*(1+.07) 1yr

Present value= 47000/1.07

Present value= 43925.23(option b)

Solution to que no 4 : option c) 29842$

cash inflow fr 3yrs 12000 pa * pvf 10% fr 3yrs(2.4869) = 29842$(option c)

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