Corporate Finance - Corporate Finance Section 1
- Option : C
- Explanation : Enter the following values in a financial calculator: CF0 = -90,000, CF1 = 50,000, CF2 = 55,000, CPT IRR. IRR = 10.74%.
| Year | 0 | 1 | 2 | 3 | 4 | 5 |
| Cash Flows | -150 | 40 | 40 | 50 | 60 | 40 |
The internal rate of return (IRR) for the project is closest to:
- Option : C
- Explanation : Enter the following values in a financial calculator: CF0 = -150, CF1 = 40, CF2 = 40, C03 = 50, C04 = 60, C05 = 40, CPT IRR. IRR = 15.57% rounding up to 16%.
53. An analyst determines the following cash flows for a capital project:
| Year | 0 | 1 | 2 | 3 | 4 | 5 |
| Cash Flow | - 200 | 80 | 65 | 45 | 45 | 30 |
The required rate of return of the project is 12 percent. The net present value (NPV) of the project is closest to:
- Option : A
- Explanation : Enter the following values in a financial calculator: CF0 = -200, CF1 = 80, CF2 = 65, CF3 = 45, CF4 = 45, CF5 = 30, I = 12, NPV CPT = 0.897 ~ $1.0.
54. Given below are the cash flows for a capital project.
| Year | 0 | 1 | 2 | 3 | 4 | 5 |
| Cash flow | (75,000) | 25,000 | 30,000 | 30,000 | 15,000 | 7,500 |
Assuming the cost of capital is 10 percent, the NPV and IRR are closest to:
| Option | NPV | IRR |
| A | 9,962 | 12.3% |
| B | 5,521 | 15.9% |
| C | 9,962 | 15.9% |
- Option : C
- Explanation : Enter the following values in a financial calculator to determine NPV and IRR: CF0 = -75,000, CF1 = 25,000, CF2 = 30,000, CF3 = 30,000, CF4 = 15,000, CF5 = 7,500, I = 10, CPT NPV. NPV = 9962.22. CPT IRR. IRR = 15.94%.
- Option : C
- Explanation :
Initial outlay Year 1 Year 2 Year 3 Year 4 Cash flow -75,000 20,000 20,000 36,000 38,000 Discounted cash
flow-75,000 18,349 16,834 27,799 26,920 Cumulative DCF -75,000 -56,651 -39,817 -12,018 14,902 Discounted cash flow = (Cash flow) / (1+discount rate)^n Discounted payback period =[3 + (12018 / 26920) ] = 3.4
