Topic 10 Capital Budgeting

_______________ means current value of a future amount of money evaluated at a given interest rate? 

• Compounding

• Discounting

• Nominal rate

• Continuous rate

Marie Ltd is considering purchasing new equipment costing $500,000. Marie Ltd's management has estimated that the equipment will generate cash flows as follows:

Year 1 $50,000

Year 2 $100,000

Year 3 $250,000

Year 4 $250,000

Year 5 $320,000

Using the discount factors in the table provided below.

Please round all calculations to the nearest whole dollar.

Calculate the present value of the net cash inflows above, using a discount rate of 10%.

• $685,358

• $185,358

• $158,358

• $500,000

What is the method which calculates the time to recoup initial investment of a project in the form of expected cashflows classified as?

• Accounting Rate of Return

• Net Present Value

• Profitability Index

• Payback Period

What is the process of planning expenditures that will influence the operation of a firm over many years called?

• Investment

• Net Present Value

• Capital Budgeting

• Accounting Rate of Return

Which method in a capital budgeting is based on the discounted cashflow

• Net present value method

• Net equity budgeting method

• Net capital budgeting method

• Net future value method

Marie Ltd is considering purchasing new equipment costing $500,000. Marie Ltd's management has estimated that the equipment will generate cash flows as follows:

Year 1 $50,000

Year 2 $100,000

Year 3 $250,000

Year 4 $250,000

Year 5 $320,000

Using the discount factors in the table provided below.

Please round all calculations to the nearest whole dollar. Calculate the net present value of the investment project (including initial investment plus the NPV of the net cash inflows above) using a discount rate of 10%.

• $185,358

• $1,185,358

• $500,000

• $158,358

Marie Ltd is considering purchasing new equipment costing $500,000. Marie Ltd's management has estimated that the equipment will generate cash flows as follows:

Year 1 $50,000

Year 2 $100,000

Year 3 $250,000

Year 4 $250,000

Year 5 $320,000

What is the payback period?

• 4.40 years

• 3.40 years

• 4.04years

• 3.04 years