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Accounting 202 Quiz 9 Spring 2006 Chapter 9 April 13, 2006 ANSWERS Last Name:______________________ First Name: ____________________ 1. A project will require an initial investment of \$750,000 and will return \$200,000 each year for five years. If taxes are ignored and the required rate of return is 9%, what is the projects net present value? Based on this analysis, should the company proceed with the project? Answer (\$200,000 * 3.8897) - \$750,000 = \$27,940 Yes, since the net present value is greater than zero, the company should proceed with the project. 2. A project will require an initial investment of \$600,000 and is expected to generate the following cash flows: Year 1 \$100,000 Year 2 \$250,000 Year 3 \$250,000 Year 4 \$200,000 Year 5 \$100,000 a) What is the projects payback period? Answer \$100,000 + \$250,000 + \$250,000 = \$600,000, so the payback period is three years. b) If the required rate of return is 20% and taxes are ignored, what is the projects net present value?... View Full Document

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