07Sep 2021 by
This simple quiz focuses on the application on Net Present Value (NPV).Numerical answers will yield a 72% mark, while detailing your thoughts (as related to this quiz!) will yield extra marks.
Question 1: What is the present value (PV) of the following series of cash flows at 10% and its IRR?Please explain the sensitivity of the present value and IRR to different discount rates.Year 0: -2,000$ | Year 1: +800$ | Year 2: +600$ | Year 3: +700$ | Year 4: +500$
Question 2: Draw a present value (PV) profile of the following project and determine the IRR(s).Is the project acceptable at 10% cost of capital? Please explain your assertions.Year 0: -4,000$ | Year 1: +10,200$ | Year 2: -6,300$Observation: if you find cumbersome to draw the PV profile you can only describe it in words, namely: (a) what’s on X axes, (b) what’s on the Y axes, (c) form of the graph, (d) where it intercepts the X axes etc.
Question 3: A firm is considering a project with a cash flow outlay of 1,000$ now and 5 annual inflows of 500$a) What is the NPV (net present value) at 10%. What is the NPV at other discount rates?b) What is the NPV assuming a general inflation rate of 8% and an increase in cash flow to $510 per year?
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