Q1 Cullumber Corp. management is planning to spend $650,000 on a new marketing campaign. They
believe that this action will result in additional cash flows of $304,000 each year for three years. If the
discount rate is 17.5 percent, what is the NPV on this project? (Enter negative amounts using
negative sign e.g. -45.25. Do not round discount factors. Round other intermediate
calculations and final answer to 0 decimal places, e.g. 1,525.)
Q2 Sheridan, Inc. management is considering purchasing a new machine at a cost of $3,810,000.
They expect this equipment to produce cash flows of $853,690, $939,950, $866,730, $1,069,400,
$1,282,560, and $1,222,400 over the next six years. If the appropriate discount rate is 15 percent,
what is the NPV of this investment? (Enter negative amounts using negative sign e.g. -45.25.
Do not round discount factors. Round other intermediate calculations and final answer to 0
decimal places, e.g. 1,525.)
Q3 Oriole Incorporated management is considering investing in two alternative production systems.
The systems are mutually exclusive, and the cost of the new equipment and the resulting cash flows
are shown in the accompanying table. The firm uses a 8 percent discount rate for production system
projects.
Year
System 1
System 2
0
-$12,800
-$42,700
1
12,800
33,100
2
12,800
33,100
3
12,800
33,100
Calculate NPV. (Enter negative amounts using negative sign, e.g. -45.25. Do not round
discount factors. Round answers to 2 decimal places, e.g. 15.25.)
NPV of System 1 is $
and NPV of System 2 is $
Q4 Blossom Corp. management is expecting a project to generate after-tax income of $66,190 in each
of the next three years. The average book value of the project’s equipment over that period will be
$212,570. If the firm’s investment decision on any project is based on an ARR of 37.5
percent. (Round answer to 1 decimal place, e.g. 5.2%.)
What is the project’s accounting rate of return?
Accounting rate of return is
%
Should the firm accept this project?
Q5 Cullumber, Inc., a resort management company, is refurbishing one of its hotels at a cost of
$7,117,580. Management expects that this will lead to additional cash flows of $1,640,000 for the
next six years. What is the IRR of this project? If the appropriate cost of capital is 12 percent, should
Cullumber go ahead with this project? (Round answer to 2 decimal places, e.g. 5.25%.)
Q6 Blossom Communication Corp. is investing $7,023,700 in new technologies. The company’s
management expects significant benefits in the first three years after installation (as can be seen by
the following cash flows), and smaller constant benefits in each of the next four years.
Find excel attachment to solve this problem
Year
Cash Flows
1
2
3
4-7
$1,699,000
$3,419,000
$2,534,100
$937,500
Q7 What is the discounted payback period for the project assuming a discount rate of 10
percent? (Round answer to 2 decimal places, e.g. 15.25. If discounted payback period
exceeds life of the project, enter 0 for the answer.)
The discounted payback period for the project is
years.
Q8 Management of Pharoah Home Furnishings is considering acquiring a new machine that can create
customized window treatments. The equipment will cost $241,550 and will generate cash flows of
$67,750 over each of the next six years. If the cost of capital is 10 percent, what is the MIRR on this
project? (Round intermediate calculations to 3 decimals and final answers to 1 decimal
places, e.g. 15.5%. Do not round factor values.)
Q9 Management of Blossom, Inc., an aviation firm, is considering purchasing three aircraft for a total
cost of $165,701,963. The company would lease the aircraft to an airline. Cash flows from the
proposed leases are shown in the following table.
Years
Cash Flow
1–4
$29,075,000
5–7
61,120,000
8–10
76,350,000
Q10 What is the IRR of this project? (Round answer to 2 decimal places, e.g. 15.25%.)
Sheridan Specialties just purchased inventory-management computer software at a cost of
$2,015,950. Cost savings from the investment over the next six years will produce the following cash
flow stream: $201,340, $354,240, $336,600, $552,250, $793,320, and $598,740. What is the
payback period on this investment? (Round answer to 2 decimal places,e.g. 15.25.)
Q: A construction firm is evaluating two value-adding projects. The first project deals with building
access roads to a new terminal at the local airport. The second project is to build a parking garage on
a piece of land that the firm owns adjacent to the airport. The firm's decision will be to
pick neither project.
pick the one that adds the most value because they are mutually exclusive projects.
accept both projects because they are independent projects.
accept both projects because they are contingent projects.