The Cash Flows Used In Capital Budgeting Calculations Are

Question: For the following set of cash flows what is the Internal Rate of Return?

A

B

1

Year

Cash flow

2

0

−$1,000

3

1

$0

4

2

$0

5

3

$1,200

Answer: 6.266%

Question: What is the Internal Rate of Return for the following set of cash flows?

A

B

1

Year

Cash flow

2

1/5/2014

−$1,000

3

6/30/2014

$0

4

3/31/2015

$0

5

6/6/2015

$1,200

Answer: 13.737%

Question: Which of the below is the Net Present Value, Internal Rate of Return, and the Modified Internal Rate of Return for the following cash flows for a project with a cost of capital of 5 percent and a reinvestment rate of 3 percent?

A

B

1

Year

Cash flow

2

0

−$1,000

3

1

−$100

4

2

$0

5

3

$1,300

Answer: $27.75; 5.906%; 5.879%

Question: What is the Net Present Value and the Internal Rate of Return for the following cash flows for a project with a cost of capital of 10 percent?

A

B

1

Date

Cash flow

2

1/1/2014

−$10,000

3

7/1/2014

$500

4

1/1/2015

$500

5

7/1/2015

$500

6

1/1/2016

$500

7

7/1/2016

$500

8

1/1/2017

$10,500

Answer: $59.04; 10.243%

Question: A project has a cost of capital of 5 percent and the following set of cash flows:

A

B

1

Year

Cash flow

2

0

−$1,000

3

1

$0

4

2

$600

5

3

$600

Which of the following is the Net Present Value?

Answer: $60

Question: The Net Present Value Profile for costs of capital from 0 percent to 20 percent of the following set of cash flows crosses from positive to negative between which pair of rates?

A

B

1

Date

Cash flow

2

0

−$20,000

3

1

$0

4

2

$0

5

3

$28,000

Answer: 11%,12%

Question: For an investment with a cost of capital of 9 percent, What is the Profitability Index for the following cash flows:

A

B

1

Date

Cash flow

2

0

−$20,000

3

1

$0

4

2

$0

5

3

$28,000

Answer: 1.081

Question:

Answer: 14%,15%

Question:

Answer: Project A becomes negative at a higher capital cost than Project B.

Question:

Answer: The Net Present value of Project A at 19% is greater than Project B at the same rate.