Old Exam Questions - Capital Budgeting - Solutions
Page 52 of 96 Pages
I/YR =
9.20
Solve for NPV = $28,999.65
Alternatively,
N = 5; I/YR = 9.2; PMT = 23,000; Solve for PV = $88,999.65
NPV = $88,999.65 - $60,000.00 = $28,999.65
Calculate NPV
B
:
CFj = -$50,000
CFj = $20,000
Nj
=
5
I/YR =
8.60
Solve for NPV = $28,607.17
Alternatively,
N = 5; I/YR = 8.6; PMT = 20,000; Solve for PV = $78,607.17
NPV = $78,607.17 - $50,000.00 = $28,607.17
Difference = $28,999.65 - $28,607.17 = $392.48
50.
Assume that you are at Year 0 and have forecasted the following cash flows if your
firm takes on Project A.
Year
Project A
1
$10,000
2
$20,000
3
$30,000
4
$20,000
5
$20,000
Also assume that this project will cost your firm $51,250 to take on at Year 0 and the
correct risk-adjusted discount rate (WACC) to use for this project is 12 percent. Based
on this information, determine the net present value (NPV) of this project at Year 0.
A.
$19,254.59
B.
$19,459.28
C.
$19,148.83
D.
$19,393.17
*
E.
$19,034.76
CFj = -51,250
CFj = 10,000
CFj = 20,000