Assignment Print View

What is the payback period for the following set of cash flows? (Round your answer to 2 decimal places,
e.g., 32.16.)

Year Cash Flow
0 –$ 5,800
1 1,450
2 1,650
3 2,050
4 1,550

Payback period years

References

Worksheet Difficulty: Basic Learning Objective: 09-02 The payback rule and some of its
shortcomings.

Assignment Print View

An investment project has annual cash inflows of $5,000, $3,300, $4,500, and $3,700, for the next four
years, respectively. The discount rate is 14 percent.

What is the discounted payback period for these cash flows if the initial cost is $5,100? (Do not round
intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Discounted payback period years

What is the discounted payback period for these cash flows if the initial cost is $7,200? (Do not round
intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Discounted payback period years

What is the discounted payback period for these cash flows if the initial cost is $10,200? (Do not round
intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Discounted payback period years

References

Worksheet Difficulty: Basic Learning Objective: 09-03 The discounted payback rule and
some of its shortcomings.

Assignment Print View

3. Award: 9.09 points

A firm evaluates all of its projects by applying the NPV decision rule. A project under consideration has the
following cash flows:

Year Cash Flow
0 –$ 28,600
1 12,600
2 15,600
3 11,600

What is the NPV for the project if the required return is 11 percent? (Do not round intermediate
calculations and round your answer to 2 decimal places, e.g., 32.16.)

NPV $

At a required return of 11 percent, should the firm accept this project?

No
Yes

What is the NPV for the project if the required return is 25 percent? (Negative amount should be
indicated by a minus sign. Do not round intermediate calculations and round your answer to 2
decimal places, e.g., 32.16.)

NPV $

At a required return of 25 percent, should the firm accept this project?

Yes
No

References

Worksheet Difficulty: Basic Learning Objective: 09-01 The reasons why the net present
value criterion is the best way to evaluate proposed investments.

Assignment Print View

A project has an initial cost of $76,000 and a four-year life. The company uses straight-line depreciation to a
book value of zero over the life of the project. The projected net income from the project is $3,100, $2,400,
$2,800, and $4,500 a year for the next four years, respectively. What is the average accounting return?

4.21 percent

16.84 percent

8.42 percent

34.61 percent

11.88 percent

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Assignment Print View

Use the IRR and NPV functions in Excel (note that you don’t include the initial cash flow in the NPV function)

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References

Excel Simulation Difficulty: 1 Basic Section: 9.5 The Internal Rate of Return

Use the IRR and NPV functions in Excel (note that you don’t include the initial cash flow in the NPV function)

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References

Excel Simulation Difficulty: 1 Basic Section: 9.5 The Internal Rate of Return

Use the IRR and NPV functions in Excel (note that you don’t include the initial cash flow in the NPV function)

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Excel Simulation Difficulty: 1 Basic Section: 9.5 The Internal Rate of Return

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Use the NPV function in Excel (note that NPV is convenient to use when calculating the profitability index)

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References

Excel Simulation Difficulty: 1 Basic Section: 9.6 The Profitability Index

Light Sweet Petroleum, Inc., is trying to evaluate a generation project with the following cash flows:

Year Cash Flow
0 –$ 40,000,000
1 64,000,000
2 – 13,000,000

a-
1

What is the NPV for the project if the company requires a return of 10 percent? (Do not round
intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

NPV $

a-2 Should the firm accept this project?

No
Yes

b.This project has two IRR’s, namely percent and percent, in order from
smallest to largest. (Note: One of the answers may be negative. If you can only compute one IRR value,
you should input that amount into both answer boxes in order to obtain partial credit.) (Negative amount
should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers
as a percent rounded to 2 decimal places, e.g., 32.16.)

References

Worksheet Learning Objective: 09-05 The
internal rate of return criterion
and its strengths and
weaknesses.

Difficulty: Basic Section: 9.5 The Internal Rate of
Return

The Sloan Corporation is trying to choose between the following two mutually exclusive design projects:

Year Cash Flow
(I)

Cash Flow
(II)

0 –$ 60,000 –$ 18,400
1 28,300 9,900
2 28,300 9,900
3 28,300 9,900

a-
1

If the required return is 11 percent, what is the profitability index for both projects? (Do not round
intermediate calculations. Round your answers to 3 decimal places, e.g., 32.161.)

Profitability
Index

Project I
Project II

a-2 If the company applies the profitability index decision rule, which project should the firm accept?

Project I
Project Il

b-
1

What is the NPV for both projects? (Negative amounts should be indicated by a minus sign. Do not
round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

NPV
Project I $
Project II $

b-2 If the company applies the NPV decision rule, which project should it take?

Project I
Project II

References

Worksheet Learning Objective: 09-01 The
reasons why the net present
value criterion is the best way to
evaluate proposed investments.

Section: 9.6 The Profitability Index

Difficulty: Basic Learning Objective: 09-07 The
profitability index and its relation
to net present value.

Mahjong, Inc., has identified the following two mutually exclusive projects:

Year Cash Flow (A) Cash Flow (B)
0 –$37,200 –$37,200
1 19,570 7,060
2 15,070 13,560
3 12,570 20,050
4 9,570 24,050

Required:
(a) What is the IRR for Project A?

(Click to select)

(b) What is the IRR for Project B?

(Click to select)

(c) If the required return is 12 percent, what is the NPV for Project A?

(Click to select)

(d) If the required return is 12 percent, what is the NPV for Project B?

(Click to select)

(e) At what discount rate would the company be indifferent between these two projects?

(Click to select)

rev: 09_18_2012

References

Worksheet Learning Objective: 09-01 The
reasons why the net present
value criterion is the best way to
evaluate proposed investments.

Section: 9.5 The Internal Rate of Return

Difficulty: Basic Learning Objective: 09-05 The
internal rate of return criterion
and its strengths and
weaknesses.

Assignment Print View

Consider the following two mutually exclusive projects:

Year Cash Flow
(A)

Cash Flow
(B)

0 –$ 347,000 –$ 49,500
1 48,000 24,300
2 68,000 22,300
3 68,000 19,800
4 443,000 14,900

Whichever project you choose, if any, you require a 15 percent return on your investment.

a-
1

What is the payback period for each project? (Do not round intermediate calculations and round
your answers to 2 decimal places, e.g., 32.16.)

Payback period
Project A years
Project B years

a-2 If you apply the payback criterion, which investment will you choose?

Project A
Project B

b-
1

What is the discounted payback period for each project? (Do not round intermediate calculations and
round your answers to 2 decimal places, e.g., 32.16.)

Discounted payback period
Project A years
Project B years

b-2 If you apply the discounted payback criterion, which investment will you choose?

Project A
Project B

c-
1

What is the NPV for each project? (Do not round intermediate calculations and round your answers
to 2 decimal places, e.g., 32.16.)

NPV
Project A $
Project B $

c-2 If you apply the NPV criterion, which investment will you choose?

Project A
Project B

d-
1

What is the IRR for each project? (Do not round intermediate calculations. Enter your answers as a
percent rounded to 2 decimal places, e.g., 32.16.)

IRR
Project A %
Project B %

d-2 If you apply the IRR criterion, which investment will you choose?

Project A
Project B

e-
1

What is the profitability index for each project? (Do not round intermediate calculations and round
your answers to 3 decimal places, e.g., 32.161.)

Profitability index
Project A
Project B

e-2 If you apply the profitability index criterion, which investment will you choose?

Project A

Assignment Print View
Project B

f.Based on your answers in (a) through (e), which project will you finally choose?

(Click to select)

References

Worksheet Learning Objective: 09-02 The
payback rule and some of its
shortcomings.

Learning Objective: 09-07 The profitability index and its relation
to net present value.

Difficulty: Basic Learning Objective: 09-03 The
discounted payback rule and
some of its shortcomings.

Learning Objective: 09-
01 The reasons why the
net present value
criterion is the best way
to evaluate proposed
investments.

Learning Objective: 09-05 The
internal rate of return criterion
and its strengths and
weaknesses.