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Use the following table to answer questions 1 -5 Cash Flow -$100,000 55,000 43,000 45,000 Year 1. A firm wants to start a project. A team of financial analysts estimated the following cash flows (table above). Suppose that the discount rate (interest rate) is 12%. According to the calculation of NPV we should a) We can not decide because we do not have enough information b) Undertake the project

Use the following table to answer questions 1 -5 Cash Flow -$100,000 55,000 43,000 45,000 Year 1. A firm wants to start a project. A team of financial analysts estimated the following cash flows (table above). Suppose that the discount rate (interest rate) is 12%. According to the calculation of NPV we should a) We can not decide because we do not have enough information b) Undertake the project

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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### Table for Cash Flow Analysis | Year | Cash Flow | |------|------------| | 0 | -$100,000 | | 1 | $55,000 | | 2 | $43,000 | | 3 | $45,000 | --- ### Questions Based on the Cash Flow Table 1. **Net Present Value (NPV) Analysis** - A firm considers starting a project, with the discount rate set at 12%. Based on the NPV calculation: a) We cannot decide because we do not have enough information b) Undertake the project c) Undertake the project in the short run and do not undertake in the long run d) Not undertake the project 2. **Payback Period Calculation** - The payback period for the project is: a) 3.04 years b) 2.04 years c) We cannot find it d) 1.04 years 3. **Project Decision Based on Payback Period** - Considering the calculated payback period and a cutoff of 2 years, the project should: a) Cannot decide because we do not have enough information b) Not undertake the project c) Undertake the project d) Not undertake the project in the short run but undertake the project in the long run 4. **Profitability Index (PI) Calculation** - With a discount rate of 12%, the PI for the project is: a) 2.15 b) 0.87 c) 1.15 d) 15,416.59 5. **Project Decision Based on Profitability Index** - Using the PI and a discount rate of 12%, the analysis suggests: a) Be undertaken in the long run and not in the short run b) Not be undertaken c) Be undertaken in the short run and not the long run d) Be undertaken These questions help evaluate the project's feasibility through standard financial metrics such as NPV, payback period, and PI, ensuring informed decision-making in project management.
Transcribed Image Text:### Table for Cash Flow Analysis | Year | Cash Flow | |------|------------| | 0 | -$100,000 | | 1 | $55,000 | | 2 | $43,000 | | 3 | $45,000 | --- ### Questions Based on the Cash Flow Table 1. **Net Present Value (NPV) Analysis** - A firm considers starting a project, with the discount rate set at 12%. Based on the NPV calculation: a) We cannot decide because we do not have enough information b) Undertake the project c) Undertake the project in the short run and do not undertake in the long run d) Not undertake the project 2. **Payback Period Calculation** - The payback period for the project is: a) 3.04 years b) 2.04 years c) We cannot find it d) 1.04 years 3. **Project Decision Based on Payback Period** - Considering the calculated payback period and a cutoff of 2 years, the project should: a) Cannot decide because we do not have enough information b) Not undertake the project c) Undertake the project d) Not undertake the project in the short run but undertake the project in the long run 4. **Profitability Index (PI) Calculation** - With a discount rate of 12%, the PI for the project is: a) 2.15 b) 0.87 c) 1.15 d) 15,416.59 5. **Project Decision Based on Profitability Index** - Using the PI and a discount rate of 12%, the analysis suggests: a) Be undertaken in the long run and not in the short run b) Not be undertaken c) Be undertaken in the short run and not the long run d) Be undertaken These questions help evaluate the project's feasibility through standard financial metrics such as NPV, payback period, and PI, ensuring informed decision-making in project management.
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