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?

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.)

Question options:

20%

24%

22%

28%

Hide Feedback

Initial investment = $23,000,000
Length of project =n= 3 years
Required rate of return =k= 20%
To determine the IRR, the trial-and-error approach can be used. Set NPV = 0.
Try IRR = 21.6%.

Question 2

0 / 1 point

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?

Answer:

437,461

Hide Feedback

Cost of new machine = $4,133,250

Length of project =n= 6 years

Required rate of return =k= 15%

-Cost+(CF/(1.15)^1)+(CF/)(1.15)^2)+(CF/(1.15)^3)+(CF/(1.15)^4)+(CF/(1.15)^5)+CF/(1.15)^6)

Question 3

0 / 1 point

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

Question options:

8.41%

8.05%

8.79%

7.9%

Question 5

0 / 1 point

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?

Question options:

-$197,446

$1,802,554

$197,446

-$1,802,554

Hide Feedback

Initial investment = $2,000,000
Length of project =n= 3 years
Required rate of return =k= 10%
Net present value = NPV

Question 7

0 / 1 point

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?

Answer:

3

Question 8

Monroe, Inc., is evaluating a project. The company uses a 13.8 percent discount rate for this project. Cost and cash flows are shown in the table. What is the NPV of the project?

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

Answer:

445,100

Hide Feedback

(-CF Year O)+(CF Year 1/(1+Rate)^1)+(CF Year 2/(1+Rate)^2)+(CF Year 3/(1+Rate)^3)+(CF Year 4/(1+Rate)^4)+CF Year 5/(1+Rate)^5)