Multiple Choice QuestionAn investment that costs $30,000 will produce annual cash flows of $10,000 for 4 years. Using a required return of 8%, the investment will generate (rounded to the nearest dollar) a:Present Value of 1RatePeriods7%8%9%40.76290.73500.7084Present Value of an Annuity of 1RatePeriods7%8%9%43.38723.31213.2397Multiple choice question.positive NPV of $33,121.positive NPV of $3,121.negative NPV of $31,121.negative NPV of $3,121.
Question
Multiple Choice QuestionAn investment that costs 10,000 for 4 years. Using a required return of 8%, the investment will generate (rounded to the nearest dollar) a:Present Value of 1RatePeriods7%8%9%40.76290.73500.7084Present Value of an Annuity of 1RatePeriods7%8%9%43.38723.31213.2397Multiple choice question.positive NPV of 3,121.negative NPV of 3,121.
Solution
To solve this question, we need to calculate the Net Present Value (NPV) of the investment. The NPV is calculated as the present value of its benefits (cash inflows) minus the present value of its costs (cash outflows).
Step 1: Calculate the present value of cash inflows.
We are given that the investment will produce annual cash flows of $10,000 for 4 years. This is an annuity, so we use the Present Value of an Annuity of 1 table.
Looking at the table, the factor for 8% rate and 4 periods is 3.3121.
So, the present value of cash inflows = 33,121
Step 2: Calculate the present value of cash outflows.
The cost of the investment is given as 30,000.
Step 3: Calculate the NPV.
NPV = Present value of cash inflows - Present value of cash outflows = 30,000 = $3,121
So, the investment will generate a positive NPV of $3,121.
Therefore, the correct answer is: positive NPV of $3,121.
Similar Questions
Multiple Choice QuestionWhich of the following is the approximate internal rate of return for an investment that costs $12,680 and has net cash flows of $4,000 for 4 years?Present Value of 1RatePeriods8%10%12%40.73500.68300.6355Present Value of an Annuity of 1RatePeriod8%10%12%43.31213.16993.0373Multiple choice question.10%12%8%6%
Fill in the Blank QuestionFill in the blank question.An investment that costs $5,000 will produce annual cash flows of $3,000 for 3 years. Using a required return of 8%, the investment will generate a NPV of $ (rounded to nearest dollar).Present Value of 1RatePeriods7%8%9%10.93460.92590.917420.87340.85730.841730.81630.79380.772240.76290.73500.708450.71300.68060.6499Present Value of an Annuity of 1RatePeriods7%8%9%10.93460.92590.917421.80801.78331.759132.62432.57712.531343.38723.31213.2397
Fill in the Blank QuestionFill in the blank question.A company is considering an investment opportunity with a cost of $5,000 that will provide future cash flows of $8,000. The cash flows for the investment for the next 4 years are: $1,000, $2,000, $3,000 and $2,000. Assume a required rate of return of 10%. The NPV is $ (rounded to nearest dollar).Present Value of 1RatePeriods10%10.909120.826430.751340.6830Present Value of an Annuity of 1RatePeriods10%43.1699
Multiple Choice QuestionJoe invests $3,000. At the end of 10 years, the investment is worth $3,300. What is the rate of return for the 10-year period?Multiple choice question.8%12%10%11%
You have been offered a unique investment opportunity. If you invest $7,078 today, you will receive $848 one year from now, $3,947 three years from now, and $12,448 ten years from now. If the interest rate is 11% per year, the NPV of this project is closest to (round to whole integer):
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.