FIN 571 Week 5 Connect Problems

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In 2008 the cash and marketable securities available with the company
was 48020 million dollars, which increased to 48949 million dollars in
2009 and then decreased to 48331 million dollars in 2010.

A financing project should be accepted if, and only if, the NPV is exactly
equal to zero.
Any type of project with greater total cash inflows than total cash
outflows, should always be accepted.
An investment project should be accepted only if the NPV is equal to the
initial cash flow.

3.The primary reason that company projects with positive net present
values are considered acceptable is that:
they create value for the owners of the firm.
the investment's cost exceeds the present value of the cash inflows.
the project's rate of return exceeds the rate of inflation.
the required cash inflows exceed the actual cash inflows.
they return the initial cash outlay within three years or less.

4.Accepting a positive net present value (NPV) project:

indicates the project will pay back within the required period of time.
is expected to increase the stockholders value by the amount of the
NPV.
ignores the inherent risks within the project.
guarantees all cash flow assumptions will be realized.
means the present value of the expected cash flows is equal to the
projects cost.

5.The net present value method of capital budgeting analysis does all of
the following except:
use all of a project's cash flows.
discount all future cash flows.
consider all relevant cash flow information.
incorporate risk into the analysis.
provide a specific anticipated rate of return.

6.What is the net present value of a project with an initial cost of $36,900
and cash inflows of $13,400, $21,600, and $10,000 for Years 1 to 3,
respectively? The discount rate is 13 percent.

7.Maxwell Software, Inc., has the following mutually exclusive projects.

a-1. Calculate the payback period for each project. (Do not round
intermediate calculations and round your answers to 3 decimal places,
e.g., 32.161.)

Payback period
Project A 1.938 years
Project B 2.063 years
________________________________________

a-2. Which, if either, of these projects should be chosen?

b-1. What is the NPV for each project if the appropriate discount rate
is 15 percent? (A negative answer should be indicated by a minus sign.
Do not round intermediate calculations and round your answers to 2
decimal places, e.g., 32.16.)

b-2. Which, if either, of these projects should be chosen if the

appropriate discount rate is 15 percent?

8.Down Under Boomerang, Inc., is considering a new three-year

expansion project that requires an initial fixed asset investment of $2.82
million. The fixed asset will be depreciated straight-line to zero over its
three-year tax life, after which it will be worthless. The project is
estimated to generate $2,120,000 in annual sales, with costs of
$815,000. The tax rate is 30 percent and the required return is 12
percent.

What is the projects NPV? (Do not round intermediate calculations and
round your answer to 2 decimal places, e.g., 32.16.)

9.The Best Manufacturing Company is considering a new investment.

Financial projections for the investment are tabulated here. The
corporate tax rate is 35 percent. Assume all sales revenue is received in
cash, all operating costs and income taxes are paid in cash, and all cash
flows occur at the end of the year. All net working capital is recovered at
the end of the project.