Question 1 (1 point) Quick Sale Real Estate Company is planning to invest in a n
ID: 2503430 • Letter: Q
Question
Question 1 (1 point)
Quick Sale Real Estate Company is planning to invest in a new development. The cost of the project will be $23 million and is expected to generate cash flows of $14,000,000, $11,750,000, and $6,350,000 over the next three years. The company's cost of capital is 20 percent. What is the internal rate of return on this project? (Round to the nearest percent.)
Question 1 options:
20%
24%
22%
28%
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Question 2 (1 point)
Muncy, Inc., is looking to add a new machine at a cost of $4,133,250. The company expects this equipment will lead to cash flows of $817,822, $863,275, $937,250, $1,019,610, $1,212,960, and $1,225,000 over the next six years. If the appropriate discount rate is 15 percent, what is the NPV of this investment?
Your Answer:
Question 2 options:
Answer
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Question 3 (1 point)
Given the following cash flows for a capital project, calculate the IRR using a financial calculator
Year
0
1
2
3
4
5
Cash Flows
($50,467)
$12,746
$14,426
$21,548
$8,580
$4,959
Question 3 options:
8.41%
8.05%
8.79%
7.9%
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Question 4 (1 point)
An investment of $83 generates after-tax cash flows of $50.00 in Year 1, $66.00 in Year 2, and $133.00 in Year 3. The required rate of return is 20 percent. The net present value is
Your Answer:
Question 4 options:
Answer
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Question 5 (1 point)
Cortez Art Gallery is adding to its existing buildings at a cost of $2 million. The gallery expects to bring in additional cash flows of $520,000, $700,000, and $1,000,000 over the next three years. Given a required rate of return of 10 percent, what is the NPV of this project?
Question 5 options:
-$197,446
$1,802,554
$197,446
-$1,802,554
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Question 6 (1 point)
Which ONE of the following statements about the payback method is true?
Question 6 options:
The payback method is consistent with the goal of shareholder wealth maximization
The payback method represents the number of years it takes a project to recover its initial investment plus a required rate of return.
There is no economic rational that links the payback method to shareholder wealth maximization.
None of these statements are true.
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Question 7 (1 point)
McKenna Sports Authority is getting ready to produce a new line of gold clubs by investing $1.85 million. The investment will result in additional cash flows of $525,000, $832,500, and $1,215,000 over the next three years. What is the payback period for this project?
Your Answer:
Question 7 options:
Answer
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Question 8 (1 point)
Year Project
0 ($11,368,000)
1 $ 2,202,590
2 $ 3,787,552
3 $ 3,325,650
4 $ 4,115,899
5 $ 4,556,424
20%
24%
22%
28%
Explanation / Answer
1. nitial investment = $23,000,000
Length of project =n= 3 years
Required rate of return =k= 20%
To determine the IRR, the trial-and-error approach can be used. Set NPV = 0.
Try IRR = 21.6%.
2.
ans :437,461
Cost of new machine = $4,133,250
Length of project =n= 6 years
Required rate of return =k= 15%
-Cost+(CF/(1.15)^1)+(CF/)(1.15)^2)+(CF/(1.15)^3)+(CF/(1.15)^4)+(CF/(1.15)^5)+CF/(1.15)^6)
5
Initial investment = $2,000,000
Length of project =n= 3 years
Required rate of return =k= 10%
Net present value = NPV
7
ans : 3
8 ans
445,100
(-CF Year O)+(CF Year 1/(1+Rate)^1)+(CF Year 2/(1+Rate)^2)+(CF Year 3/(1+Rate)^3)+(CF Year 4/(1+Rate)^4)+CF Year 5/(1+Rate)^5)
ans :437,461