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FIN 5080 Chapter 10 Quiz Problems

December 16, 2020

 

Question 1

 

Calculate the payback period for a project that requires investment of $5,400 and will provide the cashflows of $1,200,  $400, $700, $3,000 and $500 in years 1 thru 5 respectively.

 

Question 2

 

                        A project has the following cash flow. What is the project’s NPV? 

 

 

 

Discount rate:

11.00%

 

 

 

 

Year

0

1

2

3

4

Cash flows

−$1,000

$350

$350

$350

$350

 

 

 

 

 

Question 3

 

IRR has the following drawbacks. Check all that apply. No credit if you miss or wrongly check any option.

 

 

o   IRR may lead you to a wrong decision if you are deciding between mutually exclusive projects.

 

o   For a project with conventional cashflows you may decide to take a project based on IRR

when NPV would have led you to reject the project. 

 

o   IRR assumes that intermediate cashflows from a project are invested at IRR

 

o   There may be several IRRs if the cashflows are unconventional

 

o   You may get a negative IRR

 

 

Question 4

A project has the following cashflow. Calculate NPV.

 

WACC:

o   9.00%

o    

o    

o    

Year

o   0

o   1

o   2

o   3

Cash flows

 

o   −$1,000

o   $500

o   $500

o   $500

Question 5

Calculate the project’s IRR. 

Do not write the ‘%’ sign in your answer. If the answer is 12.45%, you will enter 12.45

 

Year

0

1

2

3

4

Cash flows

−$1,050

$400

$400

$400

$400

 

Question 6

A project has following cashflow. Calculate NPV

WACC:

10.25%

 

 

 

 

 

Year

0

1

2

3

4

5

Cash flows

−$1,000

$300

$300

$300

$300

$300

 

 

Question 7

Given the following cashflows calculate NPV.

WACC:

10.00%

 

 

 

Year

0

1

2

3

Cash flows

−$1,050

$450

$460

$470

 

Question 8

Given the following cashflows calculate payback period.

WACC:

10.00%

 

 

 

Year

0

1

2

3

Cash flows

−$1,050

$450

$460

$470

 

Question 9

Calculate the NPV of a project that requires investment of 937 and provides the cashflows of 104, 232, 294, 272 in the next 4 years. The relevant discount rate is 12%. (All numbers are in dollars)

Question 10

Find the payback period for a project that requires investment of $48 and returns $14 every years for 7 years.