Q1. The capital budgeting director of Green Manufacturing is evaluating a laser imaging project with the following characteristics:

§           Cost: $150,000

§           Expected life: 3 years

§           After-tax cash flows: $60,317 per year

§           Salvage value: $0

If Green Manufacturing’s cost of capital is 11.5%, what is the project’s internal rate of return (IRR)?

A)   10.0%.

B)   13.6%.

C)   $3,875.

Q2. In order to calculate the net present value (NPV) of a project, an analyst would least likely need to know the:

A)   timing of the expected cash flows from the project.

B)   opportunity cost of capital for the project.

C)   internal rate of return (IRR) of the project.

Q3. An investment with a cost of $5,000 is expected to have cash inflows of $3,000 in year 1, and $4,000 in year 2. The internal rate of return (IRR) for this investment is closest to:

A)   15%.

B)   30%.

C)   25%.

[此贴子已经被作者于2008-12-30 16:11:47编辑过]

Q1. The capital budgeting director of Green Manufacturing is evaluating a laser imaging project with the following characteristics:

§           Cost: $150,000

§           Expected life: 3 years

§           After-tax cash flows: $60,317 per year

§           Salvage value: $0

If Green Manufacturing’s cost of capital is 11.5%, what is the project’s internal rate of return (IRR)?

A)   10.0%.

B)   13.6%.

C)   $3,875.

Correct answer is A)

Since we are seeking the IRR, the answer has to be in terms of a rate of return, this eliminates the option not written in a percentage.

Since they payments (cash flows) are equals, we can calculate the IRR as: N = 3; PV = 150,000; PMT = 60,317; CPT → I/Y = 9.999

Q2. In order to calculate the net present value (NPV) of a project, an analyst would least likely need to know the:

A)   timing of the expected cash flows from the project.

B)   opportunity cost of capital for the project.

C)   internal rate of return (IRR) of the project.

Correct answer is C)

The NPV is calculated using the opportunity cost, discount rate, expected cash flows, and timing of the expected cash flows from the project. The project’s IRR is not used to calculate the NPV.

Q3. An investment with a cost of $5,000 is expected to have cash inflows of $3,000 in year 1, and $4,000 in year 2. The internal rate of return (IRR) for this investment is closest to:

A)   15%.

B)   30%.

C)   25%.

Correct answer is C)

The IRR is the discount rate that makes the net present value of the investment equal to 0.

This means -$5,000 + $3,000 / (1 + IRR) + $4,000 / (1 + IRR)² = 0

One way to compute this problem is to use trial and error with the existing answer choices and choose the discount rate that makes the PV of the cash flows closest to 5,000.

$3,000 / (1.25) + $4,000 / (1.25)² = 4,960.

Alternatively: CFO = -5,000; CF1 = 3,000; CF2 = 4,000; CPT → IRR = 24.3%.

Q4. The estimated annual after-tax cash flows of a proposed investment are shown below:

Year 1: $10,000
Year 2: $15,000
Year 3: $18,000

After-tax cash flow from sale of investment at the end of year 3 is $120,000

The initial cost of the investment is $100,000, and the required rate of return is 12%. The net present value (NPV) of the project is closest to:

A)   $19,113.

B)   $63,000.

C)   -$66,301.

Correct answer is A)

10,000 / 1.12 = 8,929

15,000 / (1.12)² = 11,958

138,000 / (1.12)³ = 98,226

NPV = 8,929 + 11,958 + 98,226 − 100,000 = $19,113

Alternatively: CFO = -100,000; CF1 = 10,000; CF2 = 15,000; CF3 = 138,000; I = 12; CPT → NPV = $19,112.

Q5. Fisher, Inc., is evaluating the benefits of investing in a new industrial printer. The printer will cost $28,000 and increase after-tax cash flows by $8,000 during each of the next five years. What are the respective internal rate of return (IRR) and net present value (NPV) of the printer project if Fisher’s required rate of return is 11%?

A)   13.20%; $1,567.

B)   17.97%; $5,844.

C)   5.56%; −$3,180.

Correct answer is A)

IRR Keystrokes: CF₀ = -$28,000; CF₁ = $8,000; F₁ = 5; CPT → IRR = 13.2%.

NPV Keystrokes: CF₀ = -$28,000; CF₁ = $8,000; F₁ = 5; I = 11; CPT → NPV = 1,567.

Since cash flows are level, an alternative is:
IRR:  N = 5; PMT = 8,000; PV = -28,000; CPT → I/Y = 13.2%.
NPV:  I/Y = 11; CPT → PV = -29,567 + 28,000 = 1,567

Q1-3答案和详解如下：

Q1. The capital budgeting director of Green Manufacturing is evaluating a laser imaging project with the following characteristics:

§           Cost: $150,000

§           Expected life: 3 years

§           After-tax cash flows: $60,317 per year

§           Salvage value: $0

If Green Manufacturing’s cost of capital is 11.5%, what is the project’s internal rate of return (IRR)?

A)   10.0%.

B)   13.6%.

C)   $3,875.

Correct answer is A)

Since we are seeking the IRR, the answer has to be in terms of a rate of return, this eliminates the option not written in a percentage.

Since they payments (cash flows) are equals, we can calculate the IRR as: N = 3; PV = 150,000; PMT = 60,317; CPT → I/Y = 9.999

Q2. In order to calculate the net present value (NPV) of a project, an analyst would least likely need to know the:

A)   timing of the expected cash flows from the project.

B)   opportunity cost of capital for the project.

C)   internal rate of return (IRR) of the project.

Correct answer is C)

The NPV is calculated using the opportunity cost, discount rate, expected cash flows, and timing of the expected cash flows from the project. The project’s IRR is not used to calculate the NPV.

Q3. An investment with a cost of $5,000 is expected to have cash inflows of $3,000 in year 1, and $4,000 in year 2. The internal rate of return (IRR) for this investment is closest to:

A)   15%.

B)   30%.

C)   25%.

Correct answer is C)

The IRR is the discount rate that makes the net present value of the investment equal to 0.

This means -$5,000 + $3,000 / (1 + IRR) + $4,000 / (1 + IRR)² = 0

One way to compute this problem is to use trial and error with the existing answer choices and choose the discount rate that makes the PV of the cash flows closest to 5,000.

$3,000 / (1.25) + $4,000 / (1.25)² = 4,960.

Alternatively: CFO = -5,000; CF1 = 3,000; CF2 = 4,000; CPT → IRR = 24.3%.

Q4-5答案和详解如下：

Year 1: $10,000
Year 2: $15,000
Year 3: $18,000

After-tax cash flow from sale of investment at the end of year 3 is $120,000

The initial cost of the investment is $100,000, and the required rate of return is 12%. The net present value (NPV) of the project is closest to:

A)   $19,113.

B)   $63,000.

C)   -$66,301.

Correct answer is A)

10,000 / 1.12 = 8,929

15,000 / (1.12)² = 11,958

138,000 / (1.12)³ = 98,226

NPV = 8,929 + 11,958 + 98,226 − 100,000 = $19,113

Alternatively: CFO = -100,000; CF1 = 10,000; CF2 = 15,000; CF3 = 138,000; I = 12; CPT → NPV = $19,112.

Q5. Fisher, Inc., is evaluating the benefits of investing in a new industrial printer. The printer will cost $28,000 and increase after-tax cash flows by $8,000 during each of the next five years. What are the respective internal rate of return (IRR) and net present value (NPV) of the printer project if Fisher’s required rate of return is 11%?

A)   13.20%; $1,567.

B)   17.97%; $5,844.

C)   5.56%; −$3,180.

Correct answer is A)

IRR Keystrokes: CF₀ = -$28,000; CF₁ = $8,000; F₁ = 5; CPT → IRR = 13.2%.

NPV Keystrokes: CF₀ = -$28,000; CF₁ = $8,000; F₁ = 5; I = 11; CPT → NPV = 1,567.

Since cash flows are level, an alternative is:
IRR:  N = 5; PMT = 8,000; PV = -28,000; CPT → I/Y = 13.2%.
NPV:  I/Y = 11; CPT → PV = -29,567 + 28,000 = 1,567

Year 1: $10,000
Year 2: $15,000
Year 3: $18,000

After-tax cash flow from sale of investment at the end of year 3 is $120,000

The initial cost of the investment is $100,000, and the required rate of return is 12%. The net present value (NPV) of the project is closest to:

A)   $19,113.

B)   $63,000.

C)   -$66,301.

Correct answer is A)

10,000 / 1.12 = 8,929

15,000 / (1.12)² = 11,958

138,000 / (1.12)³ = 98,226

NPV = 8,929 + 11,958 + 98,226 − 100,000 = $19,113

Alternatively: CFO = -100,000; CF1 = 10,000; CF2 = 15,000; CF3 = 138,000; I = 12; CPT → NPV = $19,112.

Q5. Fisher, Inc., is evaluating the benefits of investing in a new industrial printer. The printer will cost $28,000 and increase after-tax cash flows by $8,000 during each of the next five years. What are the respective internal rate of return (IRR) and net present value (NPV) of the printer project if Fisher’s required rate of return is 11%?

A)   13.20%; $1,567.

B)   17.97%; $5,844.

C)   5.56%; −$3,180.

Correct answer is A)

IRR Keystrokes: CF₀ = -$28,000; CF₁ = $8,000; F₁ = 5; CPT → IRR = 13.2%.

NPV Keystrokes: CF₀ = -$28,000; CF₁ = $8,000; F₁ = 5; I = 11; CPT → NPV = 1,567.

Since cash flows are level, an alternative is:
IRR:  N = 5; PMT = 8,000; PV = -28,000; CPT → I/Y = 13.2%.
NPV:  I/Y = 11; CPT → PV = -29,567 + 28,000 = 1,567

Q4答案和详解如下：

Year 1: $10,000
Year 2: $15,000
Year 3: $18,000

After-tax cash flow from sale of investment at the end of year 3 is $120,000

The initial cost of the investment is $100,000, and the required rate of return is 12%. The net present value (NPV) of the project is closest to:

A)   $19,113.

B)   $63,000.

C)   -$66,301.

Correct answer is A)

10,000 / 1.12 = 8,929

15,000 / (1.12)² = 11,958

138,000 / (1.12)³ = 98,226

NPV = 8,929 + 11,958 + 98,226 − 100,000 = $19,113

Alternatively: CFO = -100,000; CF1 = 10,000; CF2 = 15,000; CF3 = 138,000; I = 12; CPT → NPV = $19,112.

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