tut3-1 - FINS 5514 Week 3: NPV & Other Investment...

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1 FINS 5514 Week 3: NPV & Other Investment Criteria Use the following information to answer questions 1 through 4. You are analyzing a proposed project and have compiled the following information: Year Cash flow 0 -$135,000 1 $ 28,600 2 $ 65,500 3 $ 71,900 Required payback period 3 years Required return 8.50 percent 1. What is the net present value of the proposed project? a. $3,289.86 b. $3,313.29 c. $4,289.06 d. $4,713.71 2. What is the discounted payback period? a. 2.57 years b. 2.64 years c. 2.87 years d. 2.94 years 3. Should the project be accepted based on the internal rate of return? a. yes; The project IRR is greater than the required return. b. yes; The project IRR is equal to zero. c. no; The project IRR is greater than the required return. d. no; The project IRR is greater than zero. 4. Should the proposed project be accepted based on the profitability index (PI)? a. yes; The PI is less than 1.0. b. yes; The PI is greater than 1.0.
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This note was uploaded on 04/11/2011 for the course FINS 5514 taught by Professor No during the Three '11 term at University of New South Wales.

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tut3-1 - FINS 5514 Week 3: NPV & Other Investment...

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