1. | 1. The Seattle Corporation has been presented with an investment opportunity that will yield cash flows of P30,000 per year in Years 1 through 4, P35,000 per year in Years 5 through 9, and P40,000 in Year 10. This investment will cost the firm P150,000 today, and the firm’s cost of capital is 10 percent. Assume cash flows occur evenly during the year, 1/365th each day. What is the payback period for this investment? |
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2. | 2. Coughlin Motors is considering a project with the following expected cash flows: Project Year Cash Flow 0 -P700 million 1 200 million 2 370 million 3 225 million 4 700 million The project’s WACC is 10 percent. What is the project’s discounted payback? |
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3. | 3. A project has the following cash flows: Project Year Cash Flow 0 -P3,000 1 1,000 2 1,000 3 1,000 4 1,000 Its cost of capital is 10 percent. What is the project’s discounted payback period? |
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4. | 4. Project A has a 10 percent cost of capital and the following cash flows: Project A Year Cash Flow 0 -P300 1 100 2 150 3 200 4 50 What is Project A’s discounted payback? |
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5. | 5. As the director of capital budgeting for Denver Corporation, you are evaluating two mutually exclusive projects with the following net cash flows: Project X Project Z Year Cash Flow Cash Flow 0 -P100,000 -P100,000 1 50,000 10,000 2 40,000 30,000 3 30,000 40,000 4 10,000 60,000 If Denver’s cost of capital is 15 percent, which project would you choose? |
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6. | 6. An insurance firm agrees to pay you P3,310 at the end of 20 years if you pay premiums of P100 per year at the end of each year for 20 years. Find the internal rate of return to the nearest whole percentage point. |
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7. | Oak Furnishings is considering a project that has an up-front cost and a series of positive cash flows. The project’s estimated cash flows are summarized below: Project Year Cash Flow 0 ? 1 P500 million 2 300 million 3 400 million 4 600 million The project has a regular payback of 2.25 years. What is the project’s internal rate of return (IRR)? |
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8. | 8. Projects X and Y have the following expected net cash flows: Project X Project Y Year Cash Flow Cash Flow 0 -P500,000 -P500,000 1 250,000 350,000 2 250,000 350,000 3 250,000 Assume that both projects have a 10 percent cost of capital. What is the net present value (NPV) of the project that has the highest IRR? |
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9. | 9. Lloyd Enterprises has a project that has the following cash flows: Project Year Cash Flow 0 -P200,000 1 50,000 2 100,000 3 150,000 4 40,000 5 25,000 The cost of capital is 10 percent. What is the project’s discounted payback? |
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10. | 10. You are considering the purchase of an investment that would pay you P5,000 per year for Years 1-5, P3,000 per year for Years 6-8, and P2,000 per year for Years 9 and 10. If you require a 14 percent rate of return, and the cash flows occur at the end of each year, then how much should you be willing to pay for this investment? |
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