Net Present Value and New Machine

1450 WordsDec 9, 20136 Pages
DEPARTMENT OF ACCOUNTING AND FINANCE AFC2140 CORPORATE FINANCE MID-SEMESTER TEST FIRST SEMESTER 2012 SURNAME (FAMILY NAME)_____________________________________________ GIVEN NAME(S)______________________________________________________ ID NUMBER__________________________________________________________ TUTOR’S NAME______________________________________________________ TUTORIAL DAY AND TIME______________________________________________ INSTRUCTIONS: TIME ALLOWED: 90 MINUTES WRITING TIME AND 5 MINUTES READING TIME • CLOSED BOOK TEST • ANSWER ALL 3 QUESTIONS (AND IN THE SPACES PROVIDED) • A FORMULA SHEET IS INCLUDED AT THE BACK OFFICE USE ONLY QUESTION 1 2 3 TOTAL (OUT OF 60) MARK Question 1 (30…show more content…
It has just paid a dividend of $3.00. If the required rate of return is 15 percent per annum, what is the price of the share three years from now? A. $58.31 B. $46.29 C. $51.02 D. $47.50 Page 4 of 13 11. In evaluating capital projects, the decisions using the NPV method and the IRR method may disagree if A. the projects are independent. B. the cash flows pattern is unconventional. C. the projects are mutually exclusive. D. both B and C. 12. Jamaica Company is adding a new assembly line at a cost of $8.5 million. The company expects the project to generate cash flows of $2 million, $3 million, $4 million, and $5 million over the next four years. Its cost of capital is 16 percent per annum. What is the MIRR on this project? (Round to the nearest percent.) A. 18% B. 19% C. 20% D. 21% 13. The profitability index for a project is 1.18. If the project will produce cash inflows of $60,000 per annum for the next 12 years, what is the initial outlay for the project if the appropriate discount rate is 5 percent per annum? (Round to the nearest $10.) A. $450,670 B. $627,520 C. $1,016,950 D. none of the above 14. Gilligan 's Boat Tours finds that if it were to increase its price by 10 percent, it would have a 6 percent reduction in the NPV of its new 3-Hour Tour. Gilligan 's analysis could be described as A. a Monte Carlo simulation. B. break even analysis. C. sensitivity analysis. D. none of the above. 15. Toki Ltd. had a degree of

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