Question

# 2a. Year Cash Flow 0 –\$7,400            1 3,000            2 3,500            3 3,400  &n

2a.

 Year Cash Flow 0 –\$7,400 1 3,000 2 3,500 3 3,400

 Required: (a) What is the NPV at a discount rate of 0 percent? (Click to select)   \$2,375   \$2,425   \$2,500.00   \$2,575   \$2,625

 (b) What is the NPV at a discount rate of 11 percent? (Click to select)   \$648.31   \$610.55   \$660.9   \$629.43   \$597.96

 (c) What is the NPV at a discount rate of 24 percent? (Click to select)   \$-921.11   \$-875.06   \$-948.75   \$-967.17   \$-974.61
 (d) What is the NPV at a discount rate of 29 percent? (Click to select)   \$-1,317.98   \$-1,345.72   \$-1,456.71   \$-1,428.97   \$-1,387.35

2b.

 Mahjong, Inc., has identified the following two mutually exclusive projects:

 Year Cash Flow (A) Cash Flow (B) 0 –\$37,200 –\$37,200 1 19,570 7,060 2 15,070 13,560 3 12,570 20,050 4 9,570 24,050

 Required:
 (a) What is the IRR for Project A? (Click to select)   23.01%   21.22%   23.46%   21.67%   22.34%

 (b) What is the IRR for Project B? (Click to select)   20.43%   22.59%   22.16%   21.51%   20.86%

 (c) If the required return is 12 percent, what is the NPV for Project A? (Click to select)   \$7,096.43   \$7,535.39   \$6,950.11   \$7,681.71   \$7,315.91

 (d) If the required return is 12 percent, what is the NPV for Project B? (Click to select)   \$9,184.85   \$9,468.92   \$9,752.99   \$9,942.37   \$8,995.47

 (e) At what discount rate would the company be indifferent between these two projects (i.e. what is the crossover rate)? (Click to select)   18.75%   20.3%   18.36%   19.91%   19.33%

2c.

 Year Cash Flow 0 −\$7,300 1 4,900 2 2,900 3 3,400

 Required :
 (a) What is the profitability index for the cashflows if the relevant discount rate is 9 percent? (Click to select)   \$1.375   \$1.349   \$1.31   \$1.244   \$1.271

 (b) What is the profitability index for the cashflows if the relevant discount rate is 19 percent? (Click to select)   \$1.155   \$1.087   \$1.121   \$1.177   \$1.065

 (c) What is the profitability index for the cashflows if the relevant discount rate is 26 percent? (Click to select)   0.965   1.016   0.985   1.067   1.046

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