Question

Please give me solution and pick from multiple choice

Which of the following statement is not correct?

	a.	Based on the IRR rule, an investment is acceptable if the IRR exceeds the required return. It should be rejected otherwise.
	b.	Present value index is the present value of an investment’s future cash flows divided by its initial cost.
	c.	Payback period is the amount of time required for an investment to generate cash flows that recover its net present value.
	d.	Net present value profile is a graphical representation of the relationship between an investment’s NPVs and various discount rates.

Tick the factors that financial manager should be included when computing the incremental free cash flows of an investment decision.

		Opportunity costs
		Sunk costs
		Financing costs
		Project externalities

You wish to get a Surface when you enter your first university degree in 2 years. You have about $2,000 today in your saving account but the Surface costs $4,500. Assume the price stays the same. If you can earn 2.5% per annum, how much do you have to invest (today) to get the Surface in 2 years? If your parents are happy to subsidize $500 (today), how much do you need to invest today?  

	a.	You need to deposit $2,400 into your saving account today but only $1,500 with subsidy from parents.
	b.	You need to deposit $2,500 into your saving account today but only $2,000 with subsidy from parents.
	c.	You need to deposit $2,398.75 into your saving account today but only $1,898.75 with subsidy from parents.
	d.	You need to deposit $2,283.17 into your saving account today but only $1,783.16 with subsidy from parents.

Answer 1

The answer is

C.

Payback period is the amount of time required for an investment to generate cash flows that recover its net present value. Payback period is the time required to recover INITIAL CASH OUTFLOW Rest all are true The answer is Opportunity costs Opportunity cost represents value of benefit foregone and hence charged to the project Amount required today = 4,500/(1.025)2 = $4,283.16 Amount already there = 2,000 Amount required = $2,283.16 After Subsidy = $2,283.17 - $500 = $1,783.16 Hence, the answer is d. You need to deposit $2,283.17 into your saving account today but only $1,783.16 with subsidy from parents.