Reference no: EM131408928

Question 1

Refer to a "Present Value" table and find the closest multiplier for the Present Value of $1, in a "Compound Interest" scenario, for each of the following Interest Rates & Years:

 

6%, 5 years
20%, 9 years
12%, 12 years
2%, 4 years

A. 0.257
B. 0.747
C. 0.924
D. 0.194

Question 2

Your project requires an initial $300,000 investment. It will yield $100,000 in cash revenues and $25,000 in cash expenses for each of the next 10 years. If your company requires all nominal payback periods to be "3 years or less" for project approval, this project is acceptable. (Ignore income taxes.)

True
False

Question 3

When analyzing a project's Present Value, it is acceptable to use "Net Income" in your calculations because annual "Net Income" is the same thing as annual "Net Cash Flow" for your company.

True
False

Question 4

You received a promotion on January 1st this year (today) with a choice to either (1) accept a $25,000 bonus on January 1st this year OR (2) recieve $10,000 on December 31st this year and for two more years thereafter. The Present Value factors to use are 0.94340, 0.89000, and 0.83962 for 6%. From a financial perspective, the better choice would be to accept $10,000 a year for the next 3 years.

True
False

Question 5

You plan to replace a $250,000 piece of equipment in 5 years. You want to ensure that you can pay for the equipment in cash.

If your bank savings account pays 12% annually, about how much do you need to invest today in order to have $250,000 in 5 years?
(Hint: Be sure to use a present value factor table.)

$21,000
$50,000
$123,000
$142,000
$167,941

Question 6

An investment opportunity will yield an annual $200,000 Cash Revenues (i.e., Cash Flow from Operations) and $40,000 in Cash-based Operating Expenses. This investment has $-0- Depreciation Expense, and Income Taxes are 25%.

What is the PRE-TAX "INCREMENTAL CASH FLOW FROM OPERATIONS" from this opportunity?

$120,000
$40,000
$160,000
$150,000

Question 7

An investment opportunity will yield an annual $200,000 Cash Revenues (i.e., Cash Flow from Operations) and $40,000 in Cash-based Operating Expenses. This investment has $-0- Depreciation Expense, and Income Taxes are 25%.

What is the "AFTER-TAX CASH FLOW FROM OPERATIONS" from this opportunity?

$120,000
$160,000
$150,000
$40,000

Question 8

TIME VALUE OF MONEY

You have an opportunity to invest in a business venture. For just $50,000 invested on January 1st, you will receive $20,000 in after-tax cash flows per year on December 31st for 3 years.

As you know, if all you cared about was a Nominal Payback Period of "less than 3 years" for your investments, then this would be a good investment since $50,000 / $20,000 = 2.50 years.

However, your financial advisor has told you to consider the "Time Value of Money" whenever looking at a potential investment.

Your advisor suggests that you use Present Value factors at 10%.
Yr 1 = 0.909, Yr 2 = 0.826, and Yr 3 = 0.751

Using these factors, what is the Present Value of your annual cash payments (the sum of the annual benefits)?

$34,700
$49,720
$31,540
$60,000

Question 9

You have an opportunity to invest in a business venture. For just $50,000 invested on January 1st, you will receive $20,000 in After-Tax Cash Flows per year on December 31st for 3 years.

As you know, if all you cared about was a Nominal Payback Period of "less than 3 years" for your investments, then this would be a good investment since $50,000 / $20,000 = 2.50 years.

However, your financial advisor has told you to consider the "Time Value of Money" whenever looking at a potential investment.

Your advisor suggests that you use Present Value factors at 10%.

Yr 1 = 0.909, Yr 2 = 0.826, and Yr 3 = 0.751

Using these factors, what is the Net Present Value of this investment opportunity?

Net Present Value $10,000
Net Present Value $99,720
Net Present Value $110,000
Net Present Value <$280>

Question 10

TIME VALUE OF MONEY

You have an opportunity to invest in a business venture. It requires a $250,000 investment on January 1st. You will receive $70,000 in After-Tax Cash Flows per year on December 31st for 3 years.

At the end of 3 years, the project will be terminated, and all assets liquidated.

The net terminal value is $80,000.

Although the sum of all these cash receipts is $290,000, you realize that the Time Value of Money concept means that those future cash receipts are worth less in "today" dollars.

Therefore, for all investment opportunities, you use 10% to analyze the current (i.e., present) value of all future cash flows.

The Present Value factors at 10% are Yr 1 = 0.909, Yr 2 = 0.826, and Yr 3 = 0.751

Using those factors, what is the Net Present Value of this investment opportunity?

Net Present Value $4,020

Net Present Value $484,100

Net Present Value $254,020

Net Present Value <$15,900>