Net Present Value and Washington State University
Washington State University Finance 325
Practice Problems
1. What is the net present value of a project with the following cash flows and a required return of 12 percent? Year 0 1 2 3 Cash Flow -$28,900 $12,450 $19,630 $ 2,750
2.
What is the net present value of a project that has an initial cash outflow of $12,670 and the following cash inflows? The required return is 11.5 percent. Year 1 2 3 4 Cash Inflows $4,375 $ 0 $8,750 $4,100
3.
A project will produce cash inflows of $1,750 a year for four years. The project initially costs $10,600 to get started. In year five, the project will be closed and as a result should produce a cash inflow of $8,500. What is the net present value of this project if the required rate of return is 13.75 percent?
4.
You are considering the following two mutually exclusive projects. The required rate of return is 11.25 percent for project A and 10.75 percent for project B. Which project should you accept and why? Year 0 1 2 3 Project A -$48,000 $18,400 $31,300 $11,700 Project B -$126,900 $ 69,700 $ 80,900 $ 0
5.
You are considering two mutually exclusive projects with the following cash flows. Will your choice between the two projects differ if the required rate of return is 8 percent rather than 11 percent? If so, what should you do? Year 0 1 2 3 Project A -$240,000 $ 0 $ 0 $325,000 Project B -$198,000 $110,800 $ 82,500 $ 45,000
6. A project will produce an operating cash flow of $7,300 a year for three years. The initial cash investment in the project will be $11,600. The net after-tax salvage value is estimated at $3,500 and will be received during the last year of the project’s life. What is the net present value of the project if the required rate of return is 11 percent?
1
Washington State University Finance 325
7. A project is expected to create operating cash flows of $22,500 a year for three years. The initial cost of the fixed assets is $50,000. These assets will be worthless at the end
Practice Problems
1. What is the net present value of a project with the following cash flows and a required return of 12 percent? Year 0 1 2 3 Cash Flow -$28,900 $12,450 $19,630 $ 2,750
2.
What is the net present value of a project that has an initial cash outflow of $12,670 and the following cash inflows? The required return is 11.5 percent. Year 1 2 3 4 Cash Inflows $4,375 $ 0 $8,750 $4,100
3.
A project will produce cash inflows of $1,750 a year for four years. The project initially costs $10,600 to get started. In year five, the project will be closed and as a result should produce a cash inflow of $8,500. What is the net present value of this project if the required rate of return is 13.75 percent?
4.
You are considering the following two mutually exclusive projects. The required rate of return is 11.25 percent for project A and 10.75 percent for project B. Which project should you accept and why? Year 0 1 2 3 Project A -$48,000 $18,400 $31,300 $11,700 Project B -$126,900 $ 69,700 $ 80,900 $ 0
5.
You are considering two mutually exclusive projects with the following cash flows. Will your choice between the two projects differ if the required rate of return is 8 percent rather than 11 percent? If so, what should you do? Year 0 1 2 3 Project A -$240,000 $ 0 $ 0 $325,000 Project B -$198,000 $110,800 $ 82,500 $ 45,000
6. A project will produce an operating cash flow of $7,300 a year for three years. The initial cash investment in the project will be $11,600. The net after-tax salvage value is estimated at $3,500 and will be received during the last year of the project’s life. What is the net present value of the project if the required rate of return is 11 percent?
1
Washington State University Finance 325
7. A project is expected to create operating cash flows of $22,500 a year for three years. The initial cost of the fixed assets is $50,000. These assets will be worthless at the end