Question

Note: These questions go together. I cant post them separate.

QUESTION 9

1. What is the NPV of a project that requires an initial investment of 23 and positive cash flows from years 1 through 3 of 5, 10, and 25? Assume a discount rate of 5%.

   		11.8
   		13.6
   		14.4
   		15.9

1 points   

QUESTION 10

1. Should you invest in the above project based on its NPV?

   		Yes
   		No
   		Insufficient data

1 points   

QUESTION 11

1. What is the IRR of the above project?

   		-19.8%
   		12.1%
   		19.9%
   		25.5%

QUESTION 12

1. If the cost of capital for the above project were 30%, would you invest in this project based on the IRR?

   		Yes
   		No
   		Insufficient data

1 points   

QUESTION 13

1. If the cost of capital for the above project were 20%, would you invest in this project based on the IRR?

   		Yes
   		No
   		Insufficient data

1 points   

QUESTION 14

1. What is the payback period of the above project?

   		1 years
   		2 years
   		3 years
   		4 years

Answer 1

9. NPV of Project =PV of Cash Flows -Initial Investment -Initial Investment =5/1.05+10/1.05^2+25/1.05^3 -23 =12.43

10. Yes the investment should be in the project.

11.IRR of Project using financial calculator
CF0=-23;CF1=5;CF2=10;CF3=25;CPT IRR =25.5% (Option d is correct option)

12. No, Since IRR is less than cost of capital project should not be accepted.

13.Yes. Project should be accepted.

14. Payback period formula = Years before recovery + Cost not covered in that year/ Cash flow for that year
=2+(23-5-10)/23 =2.35 years . Payback period is 3 years (Option c is correct option)