Reference no: EM131138206

Answer the muliple question in given below with step by step solution.

1. Net present value: The Cyclone Golf Resorts is redoing its golf course at a cost of $2,744,320. It expects to generate cash flows of $1, 223,445, $2,007,812, and $3,147,890 over the next three years. If the appropriate discount rate for the firm is 13 percent, what is the NPV of this project?

a. $7,581,072
b. $2,092,432
c. $4,836,752
d. $3,112,459

2. Net present value: Johnson Entertainment Systems is setting up to manufacture a new line of video game consoles. The cost of the manufacturing equipment is $1,750,000. Expected cash flows over the next four years are $725,000, $850,000, $1,200,000, and $1,500,000. Given the company's required rate of return of 15 percent, what is the NPV of this project?

a. $1,169,806
b. $2,919,806
c. $4,669,806
d. $3,122, 607

3. Net present value: Cortez 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?

a. $1,802,554
b. $197,446
c. -$1,802,554
d. -$197,446

4. Net present value: Gao Enterprises plans to build a new plant at a cost of $3,250,000. The plant is expected to generate annual cash flows of $1,225,000 for the next five years. If the firm's required rate of return is 18 percent, what is the NPV of this project?

a. $2,875,000
b. $3,830,785
c. $580,785
d. $2,1225,875

5. Net present value: Jenkins Corporation is investing in a new piece of equipment at a cost of $6 million. The project is expected to generate annual cash flows of $1,850,000 over the next six years. The firm's cost of capital is 20 percent. What is the project's NPV?

a. $722,604
b. $351,097
c. $152,194
d. $261,008

6 Payback: Binder Corp. has invested in new machinery at a cost of $1,450,000. This investment is expected to produce cash flows of $640,000, $715,250, $823,330, and $907,125 over the next four years. What is the payback period for this project?

a. 2.12 years
b. 1.88 years
c. 4.00 years
d. 3.00 years.

7. Payback: Elmer Sporting Goods 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, $812,500, and 1,200,000 over the next three years. What is the payback period for this project?

a. 3 years
b. 2.43 years
c. 1.57 years
d. More than 3 years

8. Payback: Creighton, Inc., has invested $2,165,800 on equipment. The firm uses payback period criteria of not accepting any project that takes more than four years to recover costs. The company anticipates cash flows of $424,386, $512,178, $561,755, $764,997, $816,500, and $825,375 over the next six years. What is the payback period, and does this investment meet the firm's payback criteria?

a. 4.13 years; no
b. 4.13 years; yes
c. 3.87 years; yes
d. 3.87 years; no

9. Payback: Kathleen Dancewear Co. has bought some new machinery at a cost of $1,250,000. The impact of the new machinery will be felt in the additional annual cash flows of $375,000 over the next five years. What is the payback period for this project? If their acceptance period is three years, will this project be accepted?

a. 2.67 years; yes
b. 2.67 years; no
c. 3.33 years; yes
d. 3.33 years; no

10. Payback: Carmen Electronics bought new machinery for $5 million. This is expected to result in additional cash flows of $1.2 million over the next seven years. What is the payback period for this project? If their acceptance period is five years, will this project be accepted?

a. 4.17 years; yes
b. 4.17 years; no
c. 3.83 years; yes
d. 3.83 years; no

11. Discounted payback: Roswell Energy Company is installing new equipment at a cost of $10 million. Expected cash flows from this project over the next five years will be $1,045,000, $2,550,000, $4,125,000, $6,326,750, and $7,000,000. The company's discount rate for such projects is 14 percent. What is the project's discounted payback period?

a. 4.2 years
b. 4.4 years
c. 4.8 years
d. 5.0 years

12. Discounted payback: Carmen Electronics bought new machinery for $5 million. This is expected to result in additional cash flows of $1.2 million over the next seven years. The firm's cost of capital is 12 percent. What is the discounted payback period for this project? If the firm's acceptance period is five years, will this project be accepted?

a. 5.4 years; no
b. 6.1 years; no
c. 4.6 years; yes
d. 4.2 years; yes

13. Discounted payback: Kathleen Dancewear Co. has bought some new machinery at a cost of $1,250,000. The impact of the new machinery will be felt in the additional annual cash flows of $375,000 over the next five years. The firm's cost of capital is 10 percent. What is the discounted payback period for this project? If their acceptance period is three years, will this project be accepted?

a. 2.7 years; yes
b. 4.7 years; no
c. 2.3 years; yes
d. 4.3 years; no

14. Accounting rate of return (ARR): LaGrange Corp. has forecasted that over the next four years the average annual after-tax income will be $45,731. The average book value of the manufacturing equipment that is used is $167,095. What is the accounting rate of return?

a. 33.3%
b. 27.4%
c. 29.8%
d. 22.3%

15. Accounting rate of return (ARR): Stump Storage Co. is expecting to generate after-tax income of $155,708, $159,312, and $161,112 for each of the next three years. The equipment used will have an average book value of $251,575 over that period. What is the ARR?

a. 65.7%
b. 69.4%
c. 63.1%
d. 66.8%

16. Internal rate of return: 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.)

a. 22%
b. 20%
c. 24%
d. 28%

17. Internal rate of return: Modern Federal Bank is setting up a brand new branch. The cost of the project will be $1.2 million. The branch will create additional cash flows of $235,000, $412,300, $665,000 and $875,000 over the next four years. The firm's cost of capital is 12 percent. What is the internal rate of return on this branch expansion? (Round to the nearest percent.)

a. 20%
b. 23%
c. 25%
d. 27%

18. Internal rate of return: Signet Pipeline Co. is looking to install new equipment that will cost $2,750,000. The cash flows expected from the project are $612,335, $891,005, $1,132,000, and $1,412,500 for the next four years. What is Signet's internal rate of return? (Round to the nearest percent.)

a. 11%
b. 13%
c. 15%
d. 17%

19. Internal rate of return: Casa Del Sol Property Development Company is refurbishing a 200-unit condominium complex at a cost of $1,875,000. It expects that this will lead to expected annual cash flows of $415,350 for the next seven years. What internal rate of return can the firm earn from this project? (Round to the nearest percent.)

a. 10%
b. 12%
c. 14%
d. 16%

20. Internal rate of return: Lowell Communications, Inc., has been installing a fiber-optic network at a cost of $18 million. The firm expects annual cash flows of $3.7 million over the next 10 years. What is this project's internal rate of return? (Round to the nearest percent.)

a. 10%
b. 12%
c. 14%
d. 16%

The following information should be used for Questions 76-79.
Turnbull Corp. is in the process of constructing a new plant at a cost of $30 million. It expects the project to generate cash flows of $13,000,000, $23,000,000, and 29,000,000 over the next three years. The cost of capital is 20 percent.

21. Payback: What is the payback period for this project?

a. 1.7 years
b. 2.2 years
c. 1.2 years
d. 2.7 years

22. Net present value: What is the net present value of this project? (Round to the nearest million dollars.)

a. $10 million
b. $12 million
c. $14 million
d. $16 million

23. Internal rate of return: What is the internal rate of return that Turnbull can earn on this project? (Round to the nearest percent.)

a. 41%
b. 42%
c. 43%
d. 44%

24. Modified Internal rate of return: What is the MIRR on this project? (Round to the nearest percent.)

a. 36%
b. 37%
c. 38%
d. 39%

The following information should be used for Questions 80-82.
Jamaica Corp. is adding a new assembly line at a cost of $8.5 million. The firm expects the project to generate cash flows of $2 million, $3 million, $4 million, and $5 million over the next four years. Its cost of capital is 16 percent.

25. Payback: What is the payback period for this project?

a. 2.8 years
b. 2.9 years
c. 3.1 years
d. 3.4 years

26. Net present value: What is the net present value of this project?

a. $645,366
b. $1,213,909
c. $905,888
d. $777,713

27. Internal rate of return: What is the internal rate of return that Jamaica can earn on this project? (Round to the nearest percent.)

a. 18%
b. 19%
c. 20%
d. 21%

28. Modified internal rate of return: What is the MIRR on this project? (Round to the nearest percent.)

a. 18%
b. 19%
c. 20%
d. 21%

The following information should be used for Questions 84-87.
Strange Manufacturing Company is purchasing a production facility at a cost of $21 million. The firm expects the project to generate annual cash flows of $7 million over the next five years. Its cost of capital is 18 percent.

29. Payback: What is the payback period for this project?

a. 2.8 years
b. 3.0 years
c. 3.2 years
d. 3.4 years

30. Discounted payback: What is the discounted payback period for this project?

a. 3.9 years
b. 4.3 years
c. 4.7 years
d. 5.1 years

31. Net present value: What is the net present value of this project?

a. $890,197
b. $1,213,909
c. $905,888
d. $777,713

32. Internal rate of return: What is the internal rate of return on this project? (Round to the nearest percent.)

a. 17%
b. 18%
c. 19%
d. 20%