1. If we want to move a cash flow forward in time we willusually multiply by a number bigger than 1, but sometimes we wouldwant to divide in order to keep the present value unchanged.
a. True
b. False
2. Assume we want to move a cash flow from period 8 to period 5.The calculation of the new amount of the cash flow wouldinclude
a. Adding the interest rate to number one and raising the resultto the power of 5.
b. Adding the interest rate to number one and raising the resultto the power of 3.
c. Raising the interest rate to the power of 5.
d. Raising the interest rate to the power of 3.
3. You have been promised to receive $400 in 4 years.After receiving the $400 you plan to deposit it for another 4 yearsat a 4% interest rate. How much will you have in year 8? In otherwords, if you move the $400 to be received in year 4 to year 8 whatwill be the new amount of the cash flow?
a. $384.62.
b.$1,600.00.
c. $1,664.00.
d. $467.94.
4. How many years would you have to wait in order for a depositto grow from $1,000 to $10,000, assuming a 7% interest rate?
a. 34 years
b. 10 years
c. 9.35 years
d. 16 years
1. If we want to move a cash flow forward in time we willusually multiply by a number bigger than 1, but sometimes we wouldwant to divide in order to keep the present value unchanged.
a. True
b. False
2. Assume we want to move a cash flow from period 8 to period 5.The calculation of the new amount of the cash flow wouldinclude
a. Adding the interest rate to number one and raising the resultto the power of 5.
b. Adding the interest rate to number one and raising the resultto the power of 3.
c. Raising the interest rate to the power of 5.
d. Raising the interest rate to the power of 3.
3. You have been promised to receive $400 in 4 years.After receiving the $400 you plan to deposit it for another 4 yearsat a 4% interest rate. How much will you have in year 8? In otherwords, if you move the $400 to be received in year 4 to year 8 whatwill be the new amount of the cash flow?
a. $384.62.
b.$1,600.00.
c. $1,664.00.
d. $467.94.
4. How many years would you have to wait in order for a depositto grow from $1,000 to $10,000, assuming a 7% interest rate?
a. 34 years
b. 10 years
c. 9.35 years
d. 16 years
Related questions
The Board of Trustees has decided that we should attempt to expand our service offering. They want you to evaluate the information below and determine if this is a project we should move forward with.
The MRI Trailer costs $600,000 and has an expected life of 5 years with an estimated salvage value of $200,000 at that time. After some extensive research, the numbers we have come up with look like this:
- 15 tests per day for 250 days per year for each year of the projects life
- Each procedure is expected to generate $80 in cash collections during the first year of use (Net revenue for year 1 is 15*250*80=$300,000)
- Labor and Maintenance costs are expected to be $100,000 during the first year
- Utilities will cost $10,000 in year one and there is an incremental overhead increase of $5,000 beginning in year one
- Cost for expendable supplies is expected to be $5 per procedure
- Costs and revenues are expected to increase at a 5% inflation rate
- Our corporate cost of capital is 10%
In the Excel spreadsheet template:
- estimate the project's net cash flow over the 5 year estimated life. I want you to use the properties (formulas) in Excel here.
- determine the project's NPV and IRR (Use the excel formulas to determine this as well)
- Is this a project we should move forward with? (Consider NPV and strategic value here)---This can be written in text into your excel sheet.
This is how is should be set up on the excel sheet:
| MRI Trailer Purchase | Year | |||||
| 0 | 1 | 2 | 3 | 4 | 5 | |
| Equipment Cost | ||||||
| Net Revenues | ||||||
| Less: Labor/Maintenance Costs | ||||||
| Utilities Costs | ||||||
| Supplies | ||||||
| Incremental Overhead | ||||||
| Operating Income | ||||||
| Equipment Salvage Value | ||||||
| Net Cash Flow | ||||||
| Net Present Value (NPV) | ||||||
| Internal Rate of Return (IRR) | ||||||
| Period | CF | ||
| 0 | -100,000 | ||
| 1 | 13,000 | ||
| 2 | 50,000 | ||
| 3 | 31,000 | ||
| 4 | 34,000 | ||
| 5 | 18,000 | ||
| 6 | 16,000 | ||
| 7 | 12,000 |
Suppose you have the following initial outlay and free cash flow information on a potential investment project where upper management requires a payback period of 4 or fewer years (i.e. required payback period ⤠3.99999 years) and that investors' Required Rate of Return is 15%. Also, suppose that you will make project acceptance or rejection decisions for each problem independently of decisions made in other problems. Assuming that we want to find the project's Internal Rate of Return(IRR), what value must we set the project's Net Present Value (NPV) to?
