41 gamma corp is considering an investment opportunity with the following expected n 4306350

41 gamma corp is considering an investment opportunity with the following expected n 4306350

41) Gamma Corp. is considering an investment opportunity with the following expected net cash inflows: Year 1, $250,000; Year 2, $350,000; Year 3, $395,000. The company uses a discount rate of 12%, and the initial investment is $750,000.

The following table is available:

Present Value of $1:

10%

12%

14%

15%

1

0.909

0.893

0.877

0.870

2

0.826

0.797

0.769

0.756

3

0.751

0.712

0.675

0.658

4

0.683

0.636

0.592

0.572

5

0.621

0.567

0.519

0.497

The IRR of the project will be ________.

A) less than 12%

B) between 12% and 13%

C) between 14% and 15%

D) more than 12%

42) Glades Thread Company is evaluating an investment that will cost $520,000 and will yield cash flows of $300,000 in the first year, $200,000 in the second year, and $100,000 in the third and the final year. Use the table below and determine the internal rate of return.

Present value of $1:

8%

9%

10%

11%

1

0.926

0.917

0.909

0.901

2

0.857

0.842

0.826

0.812

3

0.794

0.772

0.751

0.731

4

0.735

0.708

0.683

0.659

5

0.681

0.65

0.621

0.593

The IRR of the project will be ________.

A) between 9% and 10%

B) less than 8%

C) less than 9%, more than 8%

D) more than 10%

43) Candela Cable Company is considering investing $450,000 in telecommunications equipment that would have an estimated life of 5 years with no residual value. The cash flows are as shown below:

Year 1

$120,000

2

$235,000

3

$140,000

4

$98,000

The present value of $1 factors are given below:

10%

12%

13%

14%

1

0.909

0.893

0.885

0.877

2

0.826

0.797

0.783

0.769

3

0.751

0.712

0.693

0.675

4

0.683

0.636

0.613

0.592

5

0.621

0.567

0.543

0.519

The IRR of the project would be ________.

A) between 12% and 13%

B) more than 13%

C) less than 10%

D) between 8% and 10%

44) Gamma Corp. is considering an investment opportunity with the following expected net cash inflows: Year 1, $250,000; Year 2, $350,000; Year 3, $395,000. Residual value of the investment would be $50,000. The company uses a discount rate of 12%, and the initial investment is $400,000. Calculate the NPV of the investment.

Present value of $1:

11%

12%

13%

14%

1

0.901

0.893

0.885

0.877

2

0.812

0.797

0.783

0.769

3

0.731

0.712

0.693

0.675

4

0.659

0.636

0.613

0.592

5

0.593

0.567

0.543

0.519

45) Gamma Corp. is considering an investment opportunity with the expected net cash inflows of $300,000 for four years. Residual value of the investment would be $70,000. The company uses a discount rate of 14%, and the initial investment is $290,000. Calculate the NPV of the investment.

Present value of annuity of $1:

12%

13%

14%

15%

1

0.893

0.885

0.877

0.87

2

1.69

1.668

1.647

1.626

3

2.402

2.361

2.322

2.283

4

3.037

2.974

2.914

2.855

5

3.605

3.517

3.433

3.352

Present value of $1:

12%

13%

14%

15%

1

0.893

0.885

0.877

0.87

2

0.797

0.783

0.769

0.756

3

0.712

0.693

0.675

0.658

4

0.636

0.613

0.592

0.572

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