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    Question 1

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    Ibrahim Sameer
    This document contains 15 multiple choice and calculation questions related to capital budgeting techniques like payback period, net present value, and internal rate of return. The questions provide cash flow information for various projects and ask the reader to calculate metrics like payback period and determine whether projects should be accepted or rejected based on criteria like payback period and net present value using different discount rates.

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    Question 1

    Uploaded by

    Ibrahim Sameer
    293 views6 pages
    This document contains 15 multiple choice and calculation questions related to capital budgeting techniques like payback period, net present value, and internal rate of return. The questions provide cash flow information for various projects and ask the reader to calculate metrics like payback period and determine whether projects should be accepted or rejected based on criteria like payback period and net present value using different discount rates.

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    Capital Bdugeting

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    This document contains 15 multiple choice and calculation questions related to capital budgeting techniques like payback period, net present value, and internal rate of return. The questions provide cash flow information for various projects and ask the reader to calculate metrics like payback period and determine whether projects should be accepted or rejected based on criteria like payback period and net present value using different discount rates.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    293 views6 pages

    Question 1

    Uploaded by

    Ibrahim Sameer
    This document contains 15 multiple choice and calculation questions related to capital budgeting techniques like payback period, net present value, and internal rate of return. The questions provide cash flow information for various projects and ask the reader to calculate metrics like payback period and determine whether projects should be accepted or rejected based on criteria like payback period and net present value using different discount rates.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 6

    Question 1

    Payback Period Given the cash flows of the four projects, A, B, C, and D, and using the Payback Period

    decision model, which projects do you accept and which projects do you reject with a three year cut-off

    period for recapturing the initial cash outflow? Assume that the cash flows are equally distributed over

    the year for Payback Period calculations.

    Projects A B C D
    Cost $10,000 $25,000 $45,000 $100,000
    Cash Flow Year One $4,000 $2,000 $10,000 $40,000
    Cash Flow Year Two $4,000 $8,000 $15,000 $30,000
    Cash Flow Year Three $4,000 $14,000 $20,000 $20,000
    Cash Flow Year Four $4,000 $20,000 $20,000 $10,000
    Cash Flow year Five $4,000 $26,000 $15,000 $0
    Cash Flow Year Six $4,000 $32,000 $10,000 $0

    Question 2

    Payback Period What are the Payback Periods of Projects E, F, G and H? Assume all cash flows are

    evenly spread throughout the year. If the cut-off period is three years, which projects do you accept?

    Projects E F G H
    Cost $40,000 $250,000 $75,000 $100,000
    Cash Flow Year One $10,000 $40,000 $20,000 $30,000
    Cash Flow Year Two $10,000 $120,000 $35,000 $30,000
    Cash Flow Year Three $10,000 $200,000 $40,000 $30,000
    Cash Flow Year Four $10,000 $200,000 $40,000 $20,000
    Cash Flow year Five $10,000 $200,000 $35,000 $10,000
    Cash Flow Year Six $10,000 $200,000 $20,000 $0

    Question 3

    Net Present Value Swanson Industries has a project with the following projected cash flows:

    Initial Cost, Year 0: $240,000

    Cash flow year one: $25,000

    Cash flow year two: $75,000


    Cash flow year three: $150,000

    Cash flow year four: $150,000

    a. Using a 10% discount rate for this project and the NPV model should this project be

    accepted or rejected?

    b. Using a 15% discount rate?

    c. Using a 20% discount rate?

    Question 4

    Net Present Value Campbell Industries has a project with the following projected cash flows:

    Initial Cost, Year 0: $468,000

    Cash flow year one: $135,000

    Cash flow year two: $240,000

    Cash flow year three: $185,000

    Cash flow year four: $135,000

    d. Using an 8% discount rate for this project and the NPV model should this project be

    accepted or rejected?

    e. Using a 14% discount rate?

    f. Using a 20% discount rate?

    Question 5

    Net Present Value Swanson Industries has four potential projects all with an initial cost of $2,000,000.

    The capital budget for the year will only allow Swanson industries to accept one of the four projects.

    Given the discount rates and the future cash flows of each project, which project should they accept?
    Cash Flows Project M Project N Project O Project P
    Year one $500,000 $600,000 $1,000,000 $300,000
    Year two $500,000 $600,000 $800,000 $500,000
    Year three $500,000 $600,000 $600,000 $700,000
    Year four $500,000 $600,000 $400,000 $900,000
    Year five $500,000 $600,000 $200,000 $1,100,000
    Discount Rate 6% 9% 15% 22%

    Question 6

    Question 7

    The Delta company is planning to purchase a machine known as machine X. Machine X would cost
    $25,000 and would have a useful life of 10 years with zero salvage value. The expected annual cash
    inflow of the machine is $10,000.

    Required: Compute payback period of machine X and conclude whether or not the machine would be
    purchased if the maximum desired payback period of Delta company is 3 years.

    Question 8

    An investment of $200,000 is expected to generate the following cash inflows in six years:

    Year 1: $70,000

    Year 2: $60,000

    Year 3: $55,000

    Year 4: $40,000

    Year 5: $30,000

    Year 6: $25,000

    Required: Compute payback period of the investment. Should the investment be made if management
    wants to recover the initial investment in 3 years or less?

    Question 9
    Question 10

    Question 11
    Question 12

    Question 13

    Question 14

    Calculate PBP, NPV & IRR from the following information. The cost of project is MVR 170,000. Following
    are the annual cash inflow from the project. Cost of capital is 10%.
    (5%)
    Question 15

    Calculate PBP, NPV & IRR from the following information. The cost of project is MVR 200,000. Following
    are the annual cash inflow from the project. Cost of capital is 20%.
    (10%)

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