A Corporation is adding a new product line that will require an investment of $120,000. The line is estimated to generate cash inflows of $25,000 the first year, $23,000 the second year, & $18,000 each year thereafter for ten more years. What’s the payback period?

A. 4.80 years B. 6.00 years

C. 6.32 years D. 6.67 years

7. If you invest $1,000 at the end of every year for five years at an interest rate of 10%, the balance of your investment in 5 years will be closest to:

A. $1,611. B. $3,791. C. $5,000. D. $6,105.

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8. You win the lottery & must decide how to take the payout. Use an 8% discount rate. What is the present value of $10,000 a year received at the end of each of the next six years?

A. $ 6,300 B. $46,230

C. $49,928 D. $60,000

10. Which of the following is another name for the rate of return?

A. Discount rate B. Required rate of return

C. Hurdle rate D. All of the above

Use the following information for the next two questions:

(Present value tables are needed.) Miami Marine Enterprises is evaluating the purchase of an hydraulic lift system for all of its locations to use for the boats brought in for repair. The company has narrowed their choices down to two—the B14 Model & the F54 Model. Financial data about the two choices follows.

B14 Model F54 Model

Investment $ 320,000 $ 240,000

Useful life (years) 8 8

Estimated annual net cash inflows for useful life $ 75,000 $ 40,000

Residual value $ 30,000 $ 10,000

Depreciation method Straight-line Straight-line

Required rate of return 14% 10%

11. What is the net present value of the B14 Model?

A. $17,395 positive B. $21,930 negative

C. $38,455 positive D. $358,455 positive

12. What is the net present value of the F54 Model?

A. $21,930 negative B. $38,455 positive

C. $178,070 positive D. $218,070 positive

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