Page 249 - BA2 Integrated Workbook - Student 2017

Supplementary objective test questions

CHAPTER 14 – LONG-TERM DECISION MAKING

14.1 A project requires an investment of $500,000. It is expected that it will generate
cash inflows of $150,000 per year for the next 5 years.

The payback period for the project is _____ years is _____ months. (to the
nearest month)

14.2 Two NPVs have been calculated for a project using the following discount rates:

10% = $(173,500)

5% = $15,150

Calculate the IRR for the project.

14.3 A landlord receives a rent of $1,000 to be received over ten successive years.
The first payment is due now.

If interest rates are 8%, then the present value of this income is equal to:

A $6,951

B $7,345

C $7,247

D $8,138

14.4 A project costing $350,000 has the following expected cash flows:

Year Cash flow ($000)
1 100
2 150
3 120
4 100

Calculate the Net Present Value for the project if the relevant rate of interest
is 8.5%.

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