Question

Consider a project that has the following cash flows over a study period of 4 years;

Initial investment: $100,000

Annual revenues: $40,000

Annual expenses: $5,000

Salvage value: $20,000

Suppose ε=MARR=20%. What is ERR and is it profitable of not?

Select one:

a. 22.9% Profitable

b. 19.1% Not Profitable

c. 20.1% Not Profitable

d. 20.1% Profitable

e. 19.1% Profitable

f. 22.9% Not Profitable

Answer #1

The project is profitable if the external rate of return is higher than the MARR

We know the future worth of C0 at time t is C0*(1+r)^t

Now, we calculate the future worth of revenues and the present worth of investment to calculate the ERR.

Thus, the correct option is c. 20.1% Not Profitable

A project that requires an initial investment of $100,000 and
generates the following cash flows:
YEAR
CASH FLOWS
1
30,000
2
35,000
3
40,000
4
20,000
5
19,000
If the cost of capital is 8.5% have a discounted payback period
of _______________

Consider a project with an initial investment of $50,000 and a
salvage value at the end of 10 years of $10,000. The study period
is 6 years and the MARR is 10%. Determine the imputed market value
at the end of the study period.

project that requires an initial investment of $100,000 and
generates the following cash flows:
YEAR
CASH FLOWS
1
30,000
2
35,000
3
40,000
4
20,000
5
19,000
If the cost of capital is 8.5% have a discounted payback period
of _______________
Seleccione una:
3.856 years
2.875 years
3.665 years
2.856 years
3.875 years
not enough data to answer

A project has the following total (or net) cash flows.
________________________________________
Year Total (or net)
cash flow
________________________________________
1 $50,000
2 70,000
3 80,000
4 100,000
_______________________________________
The required rate of return on the project is 13 percent. The
initial investment (or initial cost or initial outlay) of the
project is $100,000.
a) Find the (regular) payback period of the project.
b) Compute the discounted payback period of the project.

A project has the following total (or net) cash flows.
________________________________________
Year Total (or net)
cash flow
________________________________________
1 $50,000
2 70,000
3 80,000
4 100,000
_______________________________________
The required rate of return on the project is 13 percent. The
initial investment (or initial cost or initial outlay) of the
project is $100,000.
a) Find the (regular) payback period of the project.
b) Compute the discounted payback period of the project.

ABC company typically exhibits increasing net annual revenues
over time. In the long run, an ABC project may be profitable as
measured by IRR, but its simple payback period may be unacceptable.
Evaluate this ABC project using the IRR method when the company’s
MARR is x1% per year. If the company’s maximum allowable payback
period is three years. What is your recommendation?
Capital Investment at time 0: $100,000
Net revenue in year k :$20,000+$10,000×(k-1)
Market (Salvage) value: $X2
Useful life:...

When the annual cash flows are unequal, the payback period is
computed by adding the annual cash flows until such time as the
original investment is recovered. If a fraction of a year is
needed, it is assumed that cash flows occur evenly within each
year.
The steps for determining the payback period with uneven cash
flows is as follows:
Add the annual cash flows to one another until the investment
is recovered.
For each full year's worth of cash...

Sierra Mustard Company estimates the following cash flows and
depreciation on a project that will cost $200,000 and will last 10
years with no salvage value:
Revenues
Sales
revenue $80,000
Operating expenses
Salary
expense $32,000
Depreciation
expense 20,000
Miscellaneous
expenses 8,000 60,000
Net
Income $20,000
Instructions
(a) Calculate the
expected annual rate of return on this project showing calculations
to support your answer.
(b) Calculate the
cash payback on this project showing calculations to support your
answer.

Payback Period (Uneven cash flows)
When the annual cash flows are unequal, the payback period is
computed by adding the annual cash flows until such time as the
original investment is recovered. If a fraction of a year is
needed, it is assumed that cash flows occur evenly within each
year.
The steps for determining the payback period with uneven cash
flows is as follows:
Add the annual cash flows to one another until the investment
is recovered.
For each...

Consider two mutually exclusive projects with the following cash
flows: Project A is a 6 year project with initial (time 0) cash
outflow of 40,000 and time 1 through 6 cash inflows of
8000,14000,13000,12000,11000,and 10000 respectively. Project B is a
3 year project with initial (time 0) cash outflow of 20,000 and
time 1 through 3 cash inflows of 7000,13000, and 12000
respectively. Assuming a 11.5% cost of capital compute the
crossover internal rate of return on the incremental cash...

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