Question

1.

Beta Enterprises, Inc. is considering a project that has the following cash flow and WACC data. What is the project's NPV? Enter your answer rounded to two decimal places. Do not enter $ or comma in the answer box. For example, if your answer is $12,300.456 then enter as 12300.46 in the answer box.
WACC:		14%
Year:		0			1		2		3
Cash flows:		-$950			$500		$300		$400

2.

Delta Enterprises, Inc. has a WACC of 10% and is considering a project that requires a cash outlay of $1,250 now with cash inflows of $500 at the end of each year for the next 5 years. What is the project’s Discounted Payback? Enter your answer rounded to two decimal places. For example, if your answer is 12.345 then enter as 12.35 in the answer box.

3.

Gamma Enterprises, Inc. is considering a project that has the following cash flow and WACC data. What is the project's MIRR? Enter your answer rounded to two decimal places. Do not enter % in the answer box. For example, if your answer is 0.12345 or 12.345% then enter as 12.35 in the answer box.
WACC:		13%
Year:		0		1	2	3	4
Cash flows:		-$1,100		$300	$320	$340	$550

4.

Hogwarts Inc. is considering a project with the following cash flows:       

            Initial cash outlay = $2,500,000

            After–tax net operating cash flows for years 1 to 4 = $779,000 per year

            Additional after–tax terminal cash flow at the end of year 4 = $600,000

Compute the profitability index of this project if Hogwarts’ WACC is 11%. Enter your answer rounded to two decimal places. For example, if your answer is 12.345 then enter as 12.35 in the answer box.

5.

Anderson Associates is considering two mutually exclusive projects that have the following cash flows:

                        Project A                     Project B

Year                Cash Flow                   Cash Flow

0                    -$10,000                      -$8,000

1                       4,000                          7,000

2                       2,000                           3,000

3                       6,000                           1,000

4                       8,000                           3,000

At what cost of capital do the two projects have the same net present value? (That is, what is the crossover rate?) Enter your answer rounded to two decimal places. Do not enter % in the answer box. For example, if your answer is 0.12345 or 12.345% then enter as 12.35 in the answer box.

6.

Alpha & Omega wants to invest in a new computer system, and management has narrowed the choice to Systems A and B.

System A requires an up-front cost of $100,000, after which it generates positive after-tax cash flows of $70,000 at the end of each of the next 2 years. The system could be replaced every 2 years, and the cash inflows and outflows would remain the same.

System B also requires an up-front cost of $100,000, after which it would generate positive after-tax cash flows of $48,000 at the end of each of the next 3 years. System B can be replaced every 3 years, but each time the system is replaced, both the cash outflows and cash inflows would increase by 10%.

The company needs a computer system for 6 years, after which the current owners plan to retire and liquidate the firm. The company's cost of capital is 14%. What is the NPV (on a 6-year extended basis) of System A?

Answer 1

Calculate the NPV and discounted payback period as follows:

Formulas:

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