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Quiz _ chapter 12

# Quiz _ chapter 12 - Required Compute the net present value...

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Quiz – Chapter 12 – December 10, 2010 Name: ___________________________________ 1. Parks Company is considering an investment proposal in which a working capital investment of \$10,000 would be required. The investment would provide cash inflows of \$2,000 per year for six years. The working capital would be released for use elsewhere when the project is completed. If the company's discount rate is 10%, the investment's net present value is: A. \$1,290 B. \$(1,290) C. \$2,000 D. \$4,350 Solution Years Amount 10% factor PV Initial investment Now (\$10,000 ) 1.000 (\$10,000) Annual net cash receipts 1-6 \$2,000 4.355 \$8,710 Salvage value 6 \$10,000 0.564 \$5,640 NPV \$4,350

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Quiz – Chapter 12 – December 10, 2010 Name: ___________________________________ 2. Dilworth Corporation has provided the following data concerning a proposed investment project: The company uses a discount rate of 11%. The working capital would be released at the end of the project.
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Unformatted text preview: Required: Compute the net present value of the project. Solution 1: Assuming salvage value of old equipment to be available now: Years Amount 11% factor PV Initial investment Now (\$480,000) 1.000 (\$480,000) Annual net cash receipts 1-7 \$168,000 4.712 \$791,616 Working capital invested now (\$17,000) 1.000 (\$17,000) Working capital released 7 \$17,000 0.482 \$8,194 Salvage value now \$72,000 1.000 \$72,000 NPV \$374,810 Quiz – Chapter 12 – December 10, 2010 Name: ___________________________________ Solution 2: Assuming salvage value of proposed project will be available in 7 years Years Amount 11% factor PV Initial investment Now (\$480,00 0) 1.000 (\$480,00 0) Annual net cash receipts 1-7 \$168,000 4.712 \$791,616 Working capital invested now (\$17,000) 1.000 (\$17,000) Working capital released 7 \$17,000 0.482 \$8,194 Salvage value 7 \$72,000 0.482 \$34,704 NPV \$337,514...
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Quiz _ chapter 12 - Required Compute the net present value...

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