Exam 8: Investment Decision Rules

A delivery service is buying 600 tires for its fleet of vehicles.One supplier offers to supply the tires for $85 per tire,payable in one year.Another supplier will supply the tires for $20,000 down today,then $50 per tire,payable in one year.What is the difference in PV between the first and the second offer,assuming interest rates are 8.5%?

Use the information for the question(s) below. -If WiseGuy Inc.uses the NPV rule with a cost of capital of 8% to choose projects,which of the projects will rank highest?

When comparing mutually exclusive projects which have different scales,you must know the dollar impact of each investment rather than percentage returns.

Consider the following list of projects: You are given a budget of only $1,800,000 to invest in projects.Which projects will you select,in what order will you select them,and why?

Use the information for the question(s) below. The Sisyphean Company is planning on investing in a new project.This will involve the purchase of some new machinery costing $450,000. The Sisyphean Company expects cash inflows from this project as detailed below: The appropriate discount rate for this project is 16%. -The net present value (NPV)for this project is closest to:

A farmer sows a certain crop.It costs $250,000 to buy the seed,prepare the ground,and sow the crop.In one year's time it will cost $110,000 to harvest the crop.If the crop will be worth $380,000,and the interest rate is 8%,what is the net present value (NPV)of this investment?

An investor has the opportunity to invest in four new retail stores.The amount that can be invested in each store,along with the expected cash flow at the end of the first year,the growth rate of the concern,and the cost of capital is shown for each case.It is assumed each investment will operate in perpetuity after the initial investment.Which investment should the investor choose?

You can evaluate alternative projects with different lives by calculating and comparing their equivalent annual annuity.

What is the decision criteria using the Net Present Value rule?

Use the table for the question(s) below. Consider the following two projects: -How can you calculate the y-intercept of a net present value (NPV)profile without using TVM concepts?

A garage is comparing the cost of buying two different car hoists.Hoist A will cost $20,000,will require servicing of $1000 every two years,and last ten years.Hoist B will cost $15,000,require servicing of $800 per year,and last eight years.If the cost of capital is 7%,which is the better option,given that the firm has an ongoing requirement for a hoist?

Two mutually exclusive investment opportunities require an initial investment of $5 million.Investment A then generates $1.5 million per year in perpetuity,while investment B pays $1 million in the first year,with cash flows increasing by 3% per year after that.At what cost of capital would an investor regard both opportunities as being equivalent?

You are considering an investment opportunity that will cost you $15,000 up front,and return $5,000 per year for 10 years,with the first payment 5 years from today.What is the IRR for this investment?

An investor has a budget of $5 million.He can invest in the projects shown above.If the cost of capital is 6%,what investment or investments should he make?

What is the decision criteria using internal rate of return (IRR)rule?

Under what situation can the net present value (NPV)profile be upward sloping?

The owner of a number of gas stations is considering installing coffee machines in his gas stations.It will cost $280,000 to install the coffee machines,and they are expected to boost cash flows by $120,000 per year for their five-year working life.What must the cost of capital be if this investment has a profitability index of 1?

The timeline of an investment is shown above.If the cost of capital is 5%,what is the profitability index of this investment?

Which of the following formulas regarding net present value (NPV)is correct?

Should personal preferences for cash today versus cash tomorrow play a role in the net present value (NPV)decision-making process?