{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

This preview shows pages 1–3. Sign up to view the full content.

FIN 351 Quiz 1 Version A Student: ___________________________________________________________________________ Table 1 Year 0 1 2 3 Cash Flow -30,000 10,000 15,000 15,000 Use Table 1 to answer questions 1-5. Assume a 10% discount rate. Round if needed. 1. What is the IRR? A. 12% B. 13% C. 14% D. 15% 2. What is the NPV? 3. What is the Profitability Index? 4. What is the discounted payback period? 5. Invest or do not invest? A. Do not invest since IRR is greater than the cost of capital. B. Invest since PI is less than 1. C. Invest since IRR is greater than the cost of capital. D. Do not invest since PI is greater than 1.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
As a financial analyst you are considering two replacement projects with the following cash flows: Table 2 Year 0 1 2 3 4 Cash Flow A -5,000 4,000 3,000 Cash Flow B -10,000 6,000 3,000 2,000 3,000 Assume a discount rate of 8%. Use Table 2 to answer questions 6 and 7. 6. If project A and B are independent which project(s) would you select? 7. If project A and B are mutually exclusive which project(s) would you select? 8. In what manner does depreciation expense affect investment projects? 9. You are interested in investing in a new computer. The cost today is \$1,000. The cost next year is \$980. The present value of the savings is \$1,100. The discount rate is 25%. Should you buy today or next year? A. Buy today. B. Buy next year. Questions 10 to 12 refer to the following information. You are an analyst with Smith Securities. One of the companies that you follow is Mac Company. Mac Company is considering the purchase of a new 400-ton stamping press for an expansion project. The press costs \$45,000. The press will depreciate straight line to 0 over a three-year life. The press will generate \$35,000 in revenues each year and \$10,000 in expenses. The press will be sold for \$20,000 after 3 years. An inventory investment of \$5,000 is required during the life of the investment. Mac is in the 40 percent tax bracket. The cost of capital is 10%.
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern