Old Exam Questions - Capital Budgeting
Page 46 of 55 Pages
at Year 1 (right after observing the cash flow at Year 1) and receive $450 at Year 1.
Using the discounted cash flow (DCF) methodology used in class, determine the net
present value of this project when the ability to abandon is included.
A.
$272.85
B.
$224.16
C.
$241.91
D.
$210.73
E.
$256.38
YOU ARE GIVEN THE FOLLOWING INFORMATION FOR PROBLEMS 74 - 76:
Year
Project A
Project B
0
-$5,000.00
-$5,000.00
1
$1,000.00
$4,000.00
2
$2,000.00
$4,000.00
3
$3,000.00
$2,000.00
4
$3,000.00
$2,000.00
5
$5,000.00
$1,000.00
74.
Given the information above, and assuming a weighted average cost of capital (risk-
adjusted discount rate) of 10 percent, determine the net present value (NPV) of the
project with the lowest internal rate of return (IRR).
A.
$4,694.83
B.
$5,106.94
C.
$4,832.20
D.
$5,244.43
E.
$4,969.57
75.
Given the information above, and assuming a weighted average cost of capital (risk-
adjusted discount rate) of 10 percent, but a true reinvestment rate of 20 percent,
determine the modified internal rate of return (MIRR) for Project B.
A.
32.49%
B.
36.60%
C.
33.86%
D.
37.97%
E.
35.23%
76.
Given the information above, and assuming a weighted average cost of capital (risk-
adjusted discount rate) of 10 percent and infinite replication, determine the net present
value (NPB) of Project A using the equivalent annual annuity (EAA) approach.
A.
$12,560.12