Exam 5: Capital Budgeting

A project with a projected 6-year life would cost $100,000. Its annual cash flows would be $40,000, while its annual income flows would be $30,000. The payback period would be how many years?

Which of the following are BOTH a problem with IRR?

A profitability index of .85 for a project means what?

What is the Internal Rate of Return of the investment with a series of cashflows that results in the following NPVs? - $\$ 600,000$ at a $5 \%$ discount rate; - $\$ 200,000$ at a $10 \%$ discount rate; - $( \$ 200,000 )$ at a $15 \%$ discount rate;

Sayer Tool Co. is considering investing in specialized equipment costing $610,000. The equipment has a useful life of five years and a residual value of $69,000. Depreciation is calculated using the straight-line method. The expected net cash inflows from the investment are given below. What is the Accounting Rate of Return on the investment? Year 1 \ 210,000 2 \ 159,000 3 \ 160,000 4 \ 95,000 5 \ 136,000 Total \ 760,000

What is the Net Present Value of this project at a 5% cost of capital? Assume the initial investment is made today (on T0) and the other cash flows take place at the end of each year. T0 Year 1 Year 2 Year 3 Year 4 -8,000 6,000 4,000 1,000 1,000

A project's profitability index is equal to the ratio of the ______ of a project's future cash flows to the project's ______.

Internal Rate of Return is a "discounted cash flow" (DCF) technique. Which of the following are ALL DCF techniques?

What is the compounding factor, or future value factor, of a cash flow to be invested at a rate of 5%, for 4 years?

Which of the following has the highest present value?

What is the discount factor, or present value factor, of a cash flow to be received 4 years form now, at a rate of 6%

Capital budgeting is what?

If investment projects are "mutually exclusive", what does that mean?

If the "net cashflow" of an investment is defined as "total positive cashflows LESS total negative cashflows", what is then the relationship between net cashflow and NPV?

What is in the denominator (bottom part) of the formula for Accounting Rate of Return?