Question

1. ABC Service can purchase a new assembler for $15,052 that will provide an annual net cash flow of $6,000 per year for five years. Calculate the NPV of the assembler if the required rate of return is 12%. (Round your answer to the nearest $1.)
A) $1,056
B) $4,568
C) $7,621
D) $6,577

2, Fitchminster Armored Car can purchase a new vehicle for $200,000 that will provide annual net cash flow over the next five years of $40,000, $45,000, $50,000, $55,000, $60,000. The salvage value of the vehicle will be $25,000. Assume that the vehicle is sold at the end of year 5. Calculate the NPV of the ambulance if the required rate of return is 9%. (Round your answer to the nearest $1.)
A) $7,390
B) $6,048
C) $6,780
D) $19,483

3. A machine costs $10,000, has a three-year life, and has an estimated salvage value of $1000. It will generate after-tax annual cash flows (ACF) of $6000 a year, starting next year. If your required rate of return for the project is 10%, what is the NPV of this investment? (Round your answer to the nearest $1.00.)
A) $9,000
B) $5,672
C) $5,157
D) -$1,500

4. MacHinery Manufacturing Company is considering a three-year project that has a cost of $75,000. The project will generate after-tax cash flows of $33,100 in Year 1, $31,500 in Year 2, and $31,200 in Year 3. Assume that the firm's proper rate of discount is 10% and that the firm's tax rate is 40%. What is the project's payback?
A) 0.33 years
B) 1.22 years
C) 2.33 years
D) Three years

5. Nouvel An S.A. is considering a project that requires an initial investment of $51,000. It is expected to produce annual cash flows of $35,000, $25,000 and $15,000. What is the discounted payback period for this project if the discount rate is 12%?
A) approximately 1 year.
B) approximately 1.6 years.
C) approximately 2 years.
D) The project will never reach discounted payback.

6. The Seattle Corporation has been presented with an investment opportunity which 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 $100,000 today, and the firm's cost of capital is 10%. Assume cash flows occur evenly during the year. The discounted payback period is
A) 5.23 years.
B) 4.26 years.
C) 4.35 years.
D) 3.72 years.

7. Warchester Inc. is considering the purchase of copying equipment that will require an initial investment of $15,000 and $4,000 per year in annual operating costs over the equipment's estimated useful life of 5 years. The company will use a discount rate of 8.5%. What is the equivalent annual cost?
A) $7,806.49
B) $6,152.51
C) $7,000
D) $4,000

Answer 1

Answer to Question 1:

NPV = -$15,052 + $6,000/1.12 + $6,000/1.12^2 + $6,000/1.12^3 + $6,000/1.12^4 + $6,000/1.12^5
NPV = -$15,052 + $6,000 * (1 - (1/1.12)^5) / 0.12
NPV = -$15,052 + $21,629
NPV = $6,577

Answer to Question 2:

NPV = -$200,000 + $40,000/1.09 + $45,000/1.09^2 + $50,000/1.09^3 + $55,000/1.09^4 + $60,000/1.09^5 + $25,000/1.09^5
NPV = $7,390

Answer to Question 3:

NPV = -$10,000 + $6,000/1.10 + $6,000/1.10^2 + $6,000/1.10^3 + $1,000/1.10^3
NPV = -$10,000 + $6,000 * (1 - (1/1.10)^3) / 0.10 + $1,000/1.10^3
NPV = $5,672

Answer to Question 4:

Initial investment = $75,000

Company will recover $33,100 in first year, $31,500 in second year and remaining $10,400 in third year

Payback Period = 2 + $10,400/$31,200
Payback Period = 2.33 years