Question

Suppose a project has conventional cash flows and a positive net present value. What do you know about its payback? Its profitability index? Its IRR? Explain.

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From the given case If we have a project with a positive NPV for a given rate, then it will also have a positive NPV for a zero discount rate. Therefore, the payback period must be less than the project life. Also the discounted payback is calculated with the same rate as in NPV, if NPV is positive, the discounted payback period will be lesser than the project's life. If NPV is positive, then the PV of the future cash inflows will be greater than the initial outlay costs, thus, Profitability index must be greater than 1. Finally, if the NPV is positive for a certain discount rate i, then it will be zero for some larger rates. Therefore, the IRR must be greater than the required return.

You are considering a project with conventional cash flows and
the following characteristics:
Discounted Payback
2.95 Years
NPV
$510,000
IRR
12%
Which of the following statements is correct given this
information?
I.
The discount rate used in computing the net present value was
greater than 12%.
II.
The payback period must be greater than 2.95 years.
III.
This project should be accepted as the NPV is positive.

11.
The discount rate that makes the net present value of an
investment exactly equal to zero is the:
A)
Payback period.
B)
Internal rate of return.
C)
Average accounting return.
D)
Profitability index.
E)
Discounted payback period.
12.
The internal rate of return (IRR) rule can be best stated
as:
A)
An investment is acceptable if its IRR is exactly equal to its
net present value (NPV).
B)
An investment is acceptable if its IRR is exactly equal to...

What is the net present value of a project that has an initial
cash outflow of $-11,400, at time 0, and the following cash flows
for years 1-4? The required return is 10.0%. DO NOT USE DOLLAR
SIGNS OR COMMAS IN YOUR ANSWER. ENTER YOUR ANSWER TO THE NEAREST
DOLLAR (e.g. 1250). Year Cash Flows 1 $4,500 2 $4,350 3 $5,400 4
$7,250 Question 1 options: Answer Question 2 (1 point) A project
has cash flows of -$163,500, $60,800, $62,300...

The NPV and payback period
Suppose you are evaluating a project with the cash inflows shown
in the following table. Your boss has asked you to calculate the
project’s net present value (NPV). You don’t know the project’s
initial cost, but you do know the project’s regular, or
conventional, payback period is 2.50 years.
The project's annual cash flows are:
Year
Cash Flow
Year 1
$400,000
Year 2
600,000
Year 3
500,000
Year 4
475,000
If the project’s desired rate...

When the present value of the cash inflows exceeds the initial
cost of a project, then the project should be
Group of answer choices
accepted because the internal rate of return is positive
accepted because the profitability index is less than 1.
accepted because the profitability index is negative.
accepted because IRR is higher than the discount rate.
rejected because the net present value is negative

Telesis Corp is considering a project that has the
following cash flows:
Year
Cash Flow
0
-$1,000
1
400
2
300
3
500
4
400
The company’s weighted average cost of capital (WACC) is
10%. What are the project’s payback period (Payback), internal rate
of return (IRR), net present value (NPV), and profitability index
(PI)?
A.
Payback = 3.5, IRR = 10.22%, NPV = $1260, PI=1.26
B.
Payback = 2.6, IRR = 21.22%, NPV = $349, PI=1.35
C.
Payback =...

Suppose you are evaluating a project with the cash inflows shown
in the following table. Your boss has asked you to calculate the
project’s net present value (NPV). You don’t know the project’s
initial cost, but you do know the project’s regular, or
conventional, payback period is 2.50 years.
The project's annual cash flows are:
Year
Cash Flow
Year 1
$375,000
Year 2
550,000
Year 3
400,000
Year 4
300,000
If the project’s desired rate of return is 9.00%, the...

17- Project L has a cost of ?$81,000. Its expected net cash
inflows are ?$90,000 per year for 8 years. What is the? project's
payback? period? If the cost of capital is 9?%, what are the?
project's net present value? (NPV) ? and what is the profitability
index? (PI)? What is the? project's internal rate of return?
(IRR)?

A project has the following total (or net) cash flows.
__________________________________________
Year Total
(or net) cash flow
_________________________________________
1 $20,000
2 30,000
3 50,000
4 60,000
_________________________________________
The required rate of return on the project is 15 percent. The
initial investment (or initial cost or initial outlay) of the
project is $80,000.
a) Find the net present value (NPV) of the project.
b) Find the profitability index (PI) of the project.
c) Calculate the modified internal rate...

Net present value (NPV)
Evaluating cash flows with the NPV method
The net present value (NPV) rule is considered one of the most
common and preferred criteria that generally lead to good
investment decisions.
Consider this case:
Suppose Blue Hamster Manufacturing Inc. is evaluating a proposed
capital budgeting project (project Beta) that will require an
initial investment of $2,750,000. The project is expected to
generate the following net cash flows:
Year
Cash Flow
Year 1
$325,000
Year 2
$475,000
Year...

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