Question

41) A company is considering an investment project with the following cash flows: Year 0 = -$160,000 (initial costs); Year 1= $50,000; Year 2 =$85,000; and Year 3 = $65,000; The company has a 9.8% cost of capital, calculate the NPV for the project ______

		a) $5,144.2
		b) $5,683.5
		c) $6,482.5
		d) $6,856.3

42) Based on the information from Question 41, calculate the IRR for the project ___

		a) 8.25%
		b) 9.34%
		c) 11.54%
		d) 10.14%

43) What is the future value of $100 invested at 10%, compounded semi-annually for 25 years? ______

		a) $1,000
		b) $1,100
		c) $1,147
		d) $1,157

Answer 1

1.Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=50000/1.098+85000/1.098^2+65000/1.098^3

=$165144.23

NPV=Present value of inflows-Present value of outflows

=$165144.23-$160000

=$5144.2(Approx)

2.Let irr be x%
At irr,present value of inflows=present value of outflows.

160000=50000/1.0x+85000/1.0x^2+65000/1.0x^3

Hence x=irr=11.54%(Approx)

3.

We use the formula:
A=P(1+r/200)^2n
where
A=future value
P=present value
r=rate of interest
n=time period.

Hence

A=$100(1+10/200)^(2*25)

=$100*11.46739979

=$1147(Approx).