Corporate Finance MCQ - Corporate Finance Section 1

51 A capital investment of 90, 000 is expected to generate an after – tax cash flow of 50,000 one year from today and a cash flow of $55,000 two years from today. The cost of capital is 12 percent. The internal rate of return is closest to:

Enter the following values in a financial calculator: CF0 = -90,000, CF1 = 50,000, CF2 = 55,000, CPT IRR. IRR = 10.74%.

52 A capital project with a net present value (NPV) of €14.02 has the following cash flows in euros:

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:

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:

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%

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%.

55 A project requires an initial outlay of $75,000. It is expected to result in positive cash flows of $20,000 for the first two years. Projections for the third and fourth year are $36,000 and $38,000 respectively. Given that the discount rate is 9%, the discounted payback for the project is closest to:

	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