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What is the payback period for the following set of cash flows?

Year	Cash Flow
0	$ 6,400
1	1,100
2	1,800
3	2,400
4	2,000

Multiple Choice

3.73 years

3.57 years

3.55 years

3.50 years

3.85 years

2. Dog Up! Franks is looking at a new sausage system with an installed cost of $327,600. This cost will be depreciated straight-line to zero over the project's 8-year life, at the end of which the sausage system can be scrapped for $50,400. The sausage system will save the firm $100,800 per year in pretax operating costs, and the system requires an initial investment in net working capital of $23,520.

If the tax rate is 22 percent and the discount rate is 16 percent, what is the NPV of this project?

Multiple Choice

$65,033.06

$51,121.62

$53,041.90

$36,696.10

$48,687.26

3. Parker & Stone, Incorporated, is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land 6 years ago for $6 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent these facilities from a competitor instead. If the land were sold today, the company would net $9.8 million. The company wants to build its new manufacturing plant on this land; the plant will cost $14.2 million to build, and the site requires $1,568,000 worth of grading before it is suitable for construction.

What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project?

Multiple Choice

$20,745,280

$26,846,400

$25,568,000

$22,432,000

$24,000,000

4. Dog Up! Franks is looking at a new sausage system with an installed cost of $803,400. This cost will be depreciated straight-line to zero over the project's 4-year life, at the end of which the sausage system can be scrapped for $123,600. The sausage system will save the firm $247,200 per year in pretax operating costs, and the system requires an initial investment in net working capital of $57,680.

If the tax rate is 21 percent and the discount rate is 16 percent, what is the NPV of this project?

Multiple Choice

$-84,997.93

$-164,749.69

$-116,362.86

$-138,925.84

$-110,821.77

5. A project with a life of 10 has an initial fixed asset investment of $27,720, an initial NWC investment of $2,640, and an annual OCF of $42,240. The fixed asset is fully depreciated over the life of the project and has no salvage value.

If the required return is 12 percent, what is the project's equivalent annual cost, or EAC?

Multiple Choice

$-45,089.66

$-49,835.94

$-40,343.38

$-26,817.54

$-47,462.80

6. Consider an asset that costs $501,600 and is depreciated straight-line to zero over its 12-year tax life. The asset is to be used in a 8-year project; at the end of the project, the asset can be sold for $62,700.

If the relevant tax rate is 23 percent, what is the aftertax cash flow from the sale of this asset?

Multiple Choice

$48,279.00

$82,398.25

$538,605.00

$91,071.75

$86,735.00

7. What is the IRR of the following set of cash flows?

Year	Cash Flow
0	$ 10,284
1	4,400
2	7,000
3	4,400

Multiple Choice

25.3%

24.8%

26.04%

23.56%

24.3%

8. Shelton Company purchased a parcel of land six years ago for $875,500. At that time, the firm invested $147,000 in grading the site so that it would be usable. Since the firm wasn't ready to use the site itself at that time, it decided to lease the land for $55,000 a year. The company is now considering building a warehouse on the site as the rental lease is expiring. The current value of the land is $927,000. What value should be included in the initial cost of the warehouse project for the use of this land?

Multiple Choice

$875,500

$0

$1,074,000

$1,022,500

$927,000

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