Question

Long Futures, Inc. has been presented with an investment opportunity which will yield end-of-year cash flows of $56,000 per year in Years 1 through 4, $75,000 per year in Years 5 through 9, and $40,000 in Year 10. This investment will cost the firm $320,000 today, and the firm's cost of capital is 12 percent.

1. What is the NPV for this investment? (In Box 1; Round it to a whole dollar and without the dollar sign.)

2. What is the IRR of the investment? (In Box 2; Answer in percentage, but without the % sign, and round it to one decimal place)

3. Compute the payback. (Box 3; Round it to one decimal place)

Box # 1 _______

Box # 2_______

Box # 3_______

Answer #1

1. The NPV of Long Futures:

($3,20,000) + $56,000/1.12 + $56,000/1.12^2 + 56,000/1.12^3 + 56,000/1.12^4 + $75,000/1.12^5 + $75,000/1.12^6 + $75,000/1.12^7 + 75,000/1.12^8 + 75,000/1.12^9 + 40,000/1.12^10

= $34,788.0263

= 34,800 (rounded off to whole dollar )

2. the IRR of the project will be :

IRR is the rate at which , the NPV is zero.

($3,20,000) + $56,000/(1+irr) + $56,000/(1+irr)^2 + 56,000/(1+irr)^3 + 56,000/(1+irr)^4 + $75,000/(1+irr)^5 + $75,000/(1+irr)^6 + $75,000/(1+irr)^7 + 75,000/(1+irr)^8 + 75,000/(1+irr)^9 + 40,000/(1+irr)^10 = 0

Solving which we get, IRR =

=14.5 (rounded off to one decimal place)

3. Payback period:

The number of years it takes to recover the initial investment of the project:

In 5 years (56,000* 4+ 75,000 = $299,000 of the investment is recovered), the remaining is recovered in ,

= 5 + $21,000/ 75,000

= 5.3 years (rounded off to one decimal place)

The Uptown Corporation has been presented with an investment
opportunity which will yield end-of-year cash flows of $55,000 per
year in Years 1 through 4, and $129,000 in Year 5. This investment
will cost the firm $235,000 today, and the firm's cost of capital
is 12 percent. What is the payback period for this investment?
Round it to two
decimal places, e.g., 3.46.

The Seattle Corporation has been presented with an investment
opportunity which will yield end-of-year cash flows of $30,000 per
year in Years 1 through 4, $35,000 per year in Years 5 through 9,
and $40,000 in Year 10. This investment will cost the firm $150,000
today, and the firm's cost of capital is 10 percent. Assume cash
flow occurs evenly during the year, 1/365th each day. What is the
payback period for this investment?

Kathy has been presented with an investment opportunity which
will yield end-of-year cash flows of $34,000 per year in Years 1
through 4, $40,000 per year in Years 5 through 9, and $48,000 in
Year 10. This investment will cost the firm $260,000 today, and the
firm's cost of capital is 5%. What is the profitability index for
this investment?
Select one:
a. 1.48
b. 1.13
c. 1.36
d. 1.05
e. 0.91
f. 0.42
g. 0.48

17. The Seattle Corporation has been presented with an
investment opportunity that will yield cash flows of $30,000 per
year in Years 1 through 4, $35,000 per year in years 5 through 9,
and $40,000 in Year 10. This investment will cost the firm $150,000
today, and the firm's cost of capital is 10 percent. Assume cash
flows occur evenly during the year, 1/365th each day. What is the
regular payback period (not the discounted payback) for this
investment?
answer:...

The Colby Corporation has been presented with an investment
opportunity, which will yield end-of-year cash flows of $10,000 per
year in Years 1 through 3, $15,000 per year in Years 4 through 8,
and $20,000 in Years 9 & 10. This investment will cost the firm
$50,000 today, and the firm's cost of capital is 9 percent. What is
the NPV for this investment? Please show work. Thank you.

The Seattle Corporation has been presented with an investment
opportunity that will
yield end-of-year cash flows of $29,685 per year in Years 1
through 4, $41,703 per
year in Years 5 through 9, and $33,862 in Year 10. This
investment will cost the firm
$181,265 today, and the firm’s cost of capital is 11.3
percent. What is the NPV for
this investment?

Seattle Corporation identifies an investment opportunity that
will yield end of year cash flows of $30,000 in both Year 1 and
Year 2, $35,000 in both Year 3 and Year 4, and $40,000 in Year 5.
The investment will cost the firm $85,000 today, and the firm's
required rate of return is 10 percent. What is the net present
value (NPV) for this investment?

You have been offered a very long-term investment opportunity to
increase your money one hundredfold. You can invest $1,700 today
and expect to $170,000 receive in 40 years. Your cost of capital
for this (very risky) opportunity is 25% . What does the IRR rule
say about whether the investment should be undertaken? What about
the NPV rule? Do they agree?
The IRR of this investment is ; (round to one decimal
place. i.e. write "12.34%" as "12.3%".)
According to IRR...

1. Newex, Inc. has a capital investment opportunity with the
following cash flows:
Year cash flow
0 (100,000)
1 45,000
2 35,000
3 30,000
4 20,000
Which of the following is closest to the project’s payback
period?
a) 4 years
b) 2 years
c) 3.7 years
d) 3.5 years
e) 2.7 years
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will cost $250,000. The cash inflows from year 1 through year 10
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2. company has been presented with the following investment
opportunity. The initial investment is expected to be $380,000. The
operating cash flows are expected to be $120,000 in year 1,
$120,000 in year 2, $120,000 in year 3, $80,000 in year 4, $80,000
in year 5 and $50,000 in year 6. If your cost of capital is 14%,
what is the NPV and IRR for the project? Should they accept?

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