EFB 210

An investment requires an outlay of $14,250 and it returns $5,000, $4,000, $3,000 and $6,000 in rent
in years one to four respectively. Given that the required rate of return is 12.00%, calculate the NPV
and IRR for the investment and indicate whether the project should be accepted or rejected.

• -648,48, 9.85%

• 648,48, 11.85%

• -927, 8.59%

• 483.29 12.85%

• Sell now (start 2014)

• Sell end 2014

• Sell end 2015

• Sell end 2016

• Sell end 2017

• Camry

• Falcon

• one year

• two years

• three years

• four years

• five years

Answer explanation

It asks for the cost, so you should choose the nearest zero

• Today

• End of year 1

• End of year 2

• End of year 3

• End of year 4

• 73.42 and 487.78

• 73.42 and 611.87

Answer explanation

Note that the AE starts at Year 3. Hence the NPV infinity at 2 = AE/r while NPV infinity at 0 = AE/r x (1+r)-2.

What is the marginal change to depreciation in your NPV analysis in year 5

• 4,525.39

• 4,799.77

• 
  4,733.03

• 4,367.19

Based on the following information, provide a detailed discounted cash flow analysis and advise whether Sunrise Industries should purchase the additional printing press. Sunrise Industries Ltd. is considering the purchase of an additional printing press for $25,000. It is expected that additional cash revenue each year will be $24,000 before taxation. Cash costs are expected to be $13,000. The press will be depreciated on a straight-line basis over its useful life of five years. It is estimated the press will have a salvage value of $1,200 at the end of its useful life. The company tax rate is 30% and tax is paid in the year in which income is earned. The appropriate discount rate is 20%. Finally, there are no additional working capital requirements for the press.

• 7493

• 2851

• 3482

• 2524

Answer explanation

A new piece of equipment is expected to produce 330 widgets per year, which will sell for $1,000 each. Variable costs are 40% of sales and fixed costs are $50,000 per year. The investment has a capital expenditure of $400,000 and will require additional working capital of $50,000 which will be recovered in the last year of operations. The new investment will be depreciated prime cost over its 5 year life and is expected to have a salvage value of $60,000 at the end of its life. Company tax is 30% and is paid the year after income. The required rate of return on such an investment is 10%.
a. Should the company purchase the new piece of equipment? (NPV)
b. What is the approximate breakeven price on the widgets? $819
c. Is the project viable if the firm only sells 200 widgets per year?

• 91,309

• 92,252

• 98,875

• 91,302

Answer explanation

Take a look at Q8 capital budgeting part 2

• ok

• no