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1 Which of the equations below are true ?

(A) (PV/FV,i,n) = 1/(1+i)
n

(B) (PV/A,i,n)= i(1+i)
n
/[(1+i)
n
-1]
(C) (PV/A,i,n) = 1/(A/PV,i,n)
(D) (PV/FV,i,n)(A/PV,i,n) = (A/FV, i,n)

2 A business is projected to make $100,000 per year starting a year from
now and continuing for the next 9 years after that. How much is it worth
now if i = 10% ?

(A) $100,000 (PV/A,10%,10)
(B) $100,000 [i(1+i)
10
/[(1+i)
10
-1]]
(C) $100,000 [i(1+i)
10
/[(1+i)
10
-1]]
-1

(D) $100,000
(E) $1,000,000

3 If you invest $614,457 today and get $100,000 back in each of the next
ten years, what is the IRR ?

Ans: 10% per Annum.

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4 If you borrow $614,457 and it is paid back over the next ten years in
equal installments of $100,000, what is the balance on the load at the
end of year 2 and also at the end of year 10?

(A) $533,493 and $100,000
(B) $575,903 and $0
(C) $533,493 and $0
(D) $533,493 and $61,446

5 Which decision criteria works best under all circumstances?

(A) NPV greater than or equal to zero
(B) PI greater than or equal to one
(C) IRR greater than or equal to the minimum return
(D) None of the above

6 A project was done at a cost of $851,356 and returns $100,000 over
each of the next 20 years, what is the IRR?

10 % per Annum


7 For the above project, what is its NPV if i = 10%?

NPV = 0.37
8 You are given a choice between receiving $20,000 two years from now
(Plan A) or $10,000 in each of the next two years (Plan B). If i = 0, which
plan do you prefer?

(A) Plan A
(B) Plan B
(C) Plan A and Plan B are the same
(D) Plan A because $20,000 is greater than $10,000

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9 For Problem 8, which do you prefer if i = 5% ?

(A) Plan A
(B) Plan B
(C) Plan A and Plan B are the same


10 A project has an NPV of $100,000 at 15%, What is true of the NPV for
this project at 10% ?

(A) Less than $100,000
(B) Greater than $100,000
(C) Zero

11 A project has an NPV of $100,000 at 15%. The investment is
$1,000,000. What is its PI?

PI = 8.6957

12 In year 5 of a project, it has revenue of $10 million, depreciation of $3
million, operating costs of $4 million and a marginal tax rate of 35%.
What is the after tax cash flow?

After tax cash flow = -500000

13 For Problem 12, what would be the after tax cash flow if you were not
allowed any depreciation?

After tax cash flow = 2500000





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14 If the revenue in Problem 12 is increased from $10 million to $15 million,
how much does the after tax cash flow increase ?
After tax cash flow = =4500000

15 If operating costs in Problem 12 go from $4million to $2 million, how
much does the after tax cash flow change ?
After tax cash flow = 1500000

16 If the marginal tax rate in Problem 12 increases from 35 to 40%, how
much does the after tax cash flow change ?

After tax cash flow =1000000

17 Which project do you prefer if i = 10%. Use NPV as a decision criteria.

Project A Invest $10,000 and save $1,000 for forever

Project B Invest $5,000 and save $500 for forever

Project C Invest $5,000 and save $1,318.99 in each of the next 5
years



18 Depreciation allows you to treat a portion of a capital cost as an expense
in future years of a project. It therefore improves your cash flow by
increasing your taxable income.
True False



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