Question

Which of the following criteria is NOT taken into consideration when analyzing a possible replacement project?

The cashflows the current project has generated in the past.

The discounted cash flows from the old and potential replacement investment.

The depreciation associated with the old and potential replacement investment.

The sunk cost associated with the original project.

A company is considering a project that has a discount rate of 5%. In the first year, it will have -$100,000 in cash flows. In year 2, it will have cash flows of $100,000, and in year 3 the project will generate $200,000. What is the project's NPV?

Group of answer choices

$358,708

$168,232

$190,476

$193,204

A company needs to obtain short-term financing due to an unexpected event. Which of the following options should it NOT pursue to meet its financial needs?

Entering into a repurchase agreement.

Obtaining an asset-based loan.

Issuing commercial paper.

Issuing corporate bonds.

Which of the following is an advantage of using the NPV method to evaluate different projects?

NPV converts future revenue to current dollars, allowing the company to quantify a project's value.

NPV can be customized to reflect the financial concerns and demands of the company.

It allows for easy comparisons of potential investments.

All of these answers.

Calculate the detailed modified payback period for a project with a discount rate of 5% the following cash flows:Year 0: -$2000Year 1: $1000Year 2: -$1000Year 3: $1000Year 4: $3000Year 5: $2000

4.44 years.

3.56 years.

4 years.

3.44 years.

Answer 1

1.While analysing possible replacement project, Cash flow of the current project which has been generated in the past is completely irrelevant in nature and it should not be accounted because it does not have any association with the replacement cost involved.

Rest of the cost like the sunk cost, the depreciation associated and the discounted cash flows from the old and the potential replacement investment are to be considered because those will be accepted into the replacement benefits.

Correct answer is option (A) the cash flow the current project has generated in the past