Washington State University
Finance 325
1
Practice Problems
1.
What is the net present value of a project with the following cash flows and a required
return of 12 percent?
Year
Cash Flow
0
$28,900
1
$12,450
2
$19,630
3
$
2,750
2.
What is the net present value of a project that has an initial cash outflow of $12,670
and the following cash inflows? The required return is 11.5 percent.
Year
Cash Inflows
1
$4,375
2
$
0
3
$8,750
4
$4,100
3.
A project will produce cash inflows of $1,750 a year for four years. The project
initially costs $10,600 to get started. In year five, the project will be closed and as a
result should produce a cash inflow of $8,500. What is the net present value of this
project if the required rate of return is 13.75 percent?
4.
You are considering the following two mutually exclusive projects. The required rate
of return is 11.25 percent for project A and 10.75 percent for project B. Which project
should you accept and why?
Year
Project A
Project B
0
$48,000
$126,900
1
$18,400
$
69,700
2
$31,300
$
80,900
3
$11,700
$
0
5.
You are considering two mutually exclusive projects with the following cash flows.
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 Spring '09
 Terry
 Corporate Finance, Net Present Value

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