# Corporate Finance - Corporate Finance Section 1

>>>>>>>>Corporate Finance Section 1

 Year 0 Year 1 Year 2 Year 3 Year 4 - 85,540 \$42,100 \$23,025 \$30,200 \$16,000

• Option : B
• Explanation :  Year Cash flow Discounted cash flow[ CFn / (1.07)^n ] Cumulative discountedcash flow:[CF0 – Cumulative PVcash flows] 0 -85,540 -85,540 -85,540 1 42,100 39,346 -46,194 2 23,025 20,111 -26,083 3 30,200 24,652 -1,431 4 16,000 12,206
The discounted payback is 3.1 years: [ 3 + (1,431 / 12,206) ].

• Option : A
• Explanation : NPV = -100 + 50/1.15 + 60/(1.15)^2 + 120/(1.15)^3 + 150/(1.15)^4 = 153.51.
Using a financial calculator, enter the cash flows.
CF0 = - 100, CF1 = 50, CF2 = -60, CF3 = 120, CF4 = 150, I = 15, CPT NPV.
NPV = 153.51.

 Year 0 -£900,000.00 Year 1 £6,344,400.00 Year 2 - £8,520,364.00 Year 3 £2,245,066.00 Year 4 £650,000.00

• Option : C
• Explanation : The question requires that NPV be found at each of the discount rates given as answer choices. When the NPV of cash flows is negative, the project is least likely to be undertaken.
Using a financial calculator, first enter the cash flows.
CF0 = - 900,000, CF1 = 6,344,400, CF2 = -8,520,364, CF3 = 2,245,066, CF4 = 650,000
Then, determine the NPV for each of the given discount rates When I = 13%, CPT NPV = -3,581
When I = 16%, CPT NPV = +34,600 When I = 18%, CPT NPV = +59,097
Hence, project will least likely be undertaken when the discount rate is 13% as the NPV is negative, while at the other two discount rates it is positive.

 Year 0 1 2 3 4 5 Cash flow (75,000) 25,000 30,000 30,000 15,000 7,500

 Year 0 Year 1 Year 2 Year 3 -450,000 -1,000,000 1,000,000 1,000,000

• Option : C
• Explanation : Enter the following values in a financial calculator: CF0 = -450,000, CF1 = -1,000,000, CF2 = 1,000,000, CF3 = 1,000,000, CPT IRR. IRR = 19.47%.