Quick Sale Real Estate Company is planning to invest in a new development. The cost of the project will be $23 million and is expected to generate cash flows of $14,000,000, $11,750,000, and $6,350,000 over the next three years.

Quick Sale Real Estate Company is planning to invest in a new development. The cost of the project will be $23 million and is expected to generate cash flows of $14,000,000, $11,750,000, and $6,350,000 over the next three years. The company’s cost of capital is 20 percent. What is the internal rate of return on this project? (Round to the nearest percent.)

20%

24%

22%

28%

Question 2Muncy, Inc., is looking to add a new machine at a cost of $4,133,250. The company expects this equipment will lead to cash flows of $818,822, $863,275, $937,250, $1,018,612, $1,212,960, and $1,225,000 over the next six years. If the appropriate discount rate is 15 percent, what is the NPV of this investment? Round to two decimal places.

Question 3Given the following cash flows for a capital project, calculate the IRR using a financial calculator

Year

0

1

2

3

4

5

Cash Flows

($50,467)

$12,746

$14,426

$21,548

$8,580

$4,959

8.41%

8.05%

8.79%

7.9%

Question 4An investment of $83 generates after-tax cash flows of $40.00 in Year 1, $72.00 in Year 2, and $135.00 in Year 3. The required rate of return is 20 percent. The net present value is

Round to two decimal places.

Question 5Cortez Art Gallery is adding to its existing buildings at a cost of $2 million. The gallery expects to bring in additional cash flows of $520,000, $700,000, and $1,000,000 over the next three years. Given a required rate of return of 10 percent, what is the NPV of this project?

-$197,446

$1,802,554

$197,446

-$1,802,554

Question 6Which ONE of the following statements about the payback method is true?

The payback method is consistent with the goal of shareholder wealth maximization

The payback method represents the number of years it takes a project to recover its initial investment plus a required rate of return.

There is no economic rational that links the payback method to shareholder wealth maximization.

None of these statements are true.

Question 7McKenna Sports Authority is getting ready to produce a new line of gold clubs by investing $1.85 million. The investment will result in additional cash flows of $525,000, $822,500, and $1,200,000 over the next three years. What is the payback period for this project? Round to four decimal places.

Question 8Monroe, Inc., is evaluating a project. The company uses a 13.8 percent discount rate for this project. Cost and cash flows are shown in the table. What is the NPV of the project?

Year            Project

  0              ($11,368,000)

  1               $  2,157,589

  2               $  3,787,552

  3               $  3,175,650

  4               $  4,115,899

  5               $  4,556,424

Round to two decimal places.

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