Hadm 2250 Prelim Review Questions

HADM 2250 Prelim Review Questions

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1.   What is the payback period for the set of cash flows given below?

Year Cash Flow
0 –$5,500
1 1,300
2 1,500
3 1,900
4 1,400

2.   An investment project provides cash inflows of $585 per year for eight years.

(a)   What is the project payback period if the initial cost is $1,700? (b) What is the project payback period if the initial cost is $3,300? (c)   What is the project payback period if the initial cost is $4,900?

3.   Buy Coastal, Inc., imposes a payback cutoff of three years for its international investment projects.

Year Cash Flow (A) Cash Flow (B)
0 –$60,000 –$70,000
1 23,000 15,000
2 28,000 18,000
3 21,000 26,000
4 8,000 230,000

(a)   What is the payback period for both projects? (b) Which project should the company accept?

4.   An investment project has annual cash inflows of $3,200, $4,100, $5,300, and $4,500, and a discount rate of 14 percent.

(a)   What is the discounted payback period for these cash flows if the initial cost is $5,900? (b) What is the discounted payback period for these cash flows if the initial cost is $8,000? (c)   What is the discounted payback period for these cash flows if the initial cost is $11,000?
5.   An investment project costs $10,000 and has annual cash flows of $2,900 for six years. (a)   What is the discounted payback period if the discount rate is zero percent?
(b) What is the discounted payback period if the discount rate is 5 percent?
(c)   What is the discounted payback period if the discount rate is 19 percent?

6.   You’re trying to determine whether to expand your business by building a new manufacturing plant.
The plant has an installation cost of $12 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected net income of $1,854,300, $1,907,600, $1,876,000, and
$1,329,500 over these four years,...