The gallery expects to bring in additional cash flows

Question

1.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.)

• 20%
• 24%
• 22%
• 28%

2.Muncy, Inc., is looking to add a new machine at a cost of $4,133,250. The company expects this equipment will lead to cash flows of $817,822, $863,275, $937,250, $1,019,610, $1,212,960, and $1,225,000 over the next six years. If the appropriate discount rate is 15 percent, what is the NPV of this investment?

3.Given the following cash flows for a capital project, calculate the IRR using a financial calculator

Year

0

1

2

3

4

5

Cash Flows

($50,467)

$12,746

$14,426

$21,548

$8,580

$4,959

• 8.41%
• 8.05%
• 8.79%
• 7.9%

4.An investment of $83 generates after-tax cash flows of $50.00 in Year 1, $66.00 in Year 2, and $133.00 in Year 3. The required rate of return is 20 percent. The net present value is?

5.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?

• -$197,446
• $1,802,554
• $197,446
• -$1,802,554

6.Which ONE of the following statements about the payback method is true?

• The payback method is consistent with the goal of shareholder wealth maximization
• The payback method represents the number of years it takes a project to recover its initial investment plus a required rate of return.
• There is no economic rational that links the payback method to shareholder wealth maximization.
• None of these statements are true.

7.McKenna Sports Authority 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, $832,500, and $1,215,000 over the next three years. What is the payback period for this project?

8.Year Project

0 ($11,368,000)

1 $ 2,202,590

2 $ 3,787,552

3 $ 3,325,650

4 $ 4,115,899

5 $ 4,556,424