1.41 Review Questions: Chapter One
Review Questions: Chapter One
1. You are given the following data. Calculate the Payback.
Initial Cost= $12,500
CF1= $7,500 CF5= $4,750
CF2= $6,275 CF6= $4,650
CF3= $4,000 CF7= $ 2,150
CF4= $4,850 CF8=$ 0
2. What problems can you cite with respect to the use of the Payback method?
3. Assuming a 2% discount rate, what is the Discounted Payback – from the prior question?
4. What problems can you cite with respect to the use of the Discounted Payback method?
5. Assuming a 3% discount rate, what is the Net Present Value?
6. What problems can you cite with respect to the use of the Net Present Value method?
7. Assuming a 4% Discount Rate, what is the Profitability Index, given the following?
Initial Cost = $22,545
CF1= $7,500 CF5= $4,750
CF2= $6,275 CF6=$4,650
CF3= $4,000 CF7=$2,150
CF4=$4,850 CF8=$0
8. Assuming a 4% Reinvestment Rate, what is the project’s Modified Internal Rate of Return?
9. What problem(s) pertain with regard to two projects’ disparate relative Scales?
10. You are given the following data. Calculate the project’s Internal Rate of Return.
Initial Cost= $13,621.80 CF1-15 = $2,000
11. Try to make up an IRR problem using Uneven Cash Flows.
12. State the rules of thumb for all the above Capital Budgeting Decision-making methods.
13. We have not, in this review, dealt with the risk of the Future Cash Flow projections. They most likely will not come in as projected. How do you propose that that issue be dealt with?
14. Do the projected numbers tell the whole story? Why or why not?
15. Can you make up another chapter question not included above?
