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Quiz 9
Spring 2006
Chapter 9
April 13, 2006
ANSWERS
Last Name:______________________
First Name: ____________________
1.
A project will require an initial investment of $750,000 and will return $200,000
each year for five years.
If taxes are ignored and the required rate of return is 9%,
what is the project’s net present value?
Based on this analysis, should the
company proceed with the project?
Answer
($200,000 * 3.8897) - $750,000 = $27,940
Yes, since the net present value is greater than zero, the company should proceed
with the project.
2.
A project will require an initial investment of $600,000 and is expected to
generate the following cash flows:
Year 1
$100,000
Year 2
$250,000
Year 3
$250,000
Year 4
$200,000
Year 5
$100,000
a)
What is the project’s payback period?
Answer
$100,000 + $250,000 + $250,000 = $600,000, so the payback
period is three years.
b)
If the required rate of return is 20% and taxes are ignored, what is the
project’s net present value?
Answer:

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