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Free CMA Exam Braindumps (page: 20)

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Which of the following statements is most likely correct for a project costing $50,000 and returning $14,000 per year for 5 years?

  1. NPV = $36,274.
  2. NPV = $20,000.
  3. IRR=14%.
  4. IRR is greater than 10%.

Answer(s): D

Explanation:

The total cash inflows are only $70,000 (5 x $14,000). Thus, whatever the discount rate, the j1NPVwill be less than $20000 ($70,000--$50,000).The return in the first year is $14,000, or28% of the initial investment. Since the same $14,000 flows in each year, the IRR is going to be greater than 10% (actually, it is almost 14%).



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What is the approximate lRP for a project that costs $50,000 and provides cash inflows of$20,000for3years?

  1. 10%
  2. 12%
  3. 22%
  4. 27%

Answer(s): A

Explanation:

The factor to use is 2.5, which is found at a little under 10% on the 3-year line of an annuity table



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Pena Company is considering a project that calls for an initial cash outlay of $50,000. The expected net cash inflows from the project are $7,791 for each of 10 years. What is the PR of the project?

  1. 6%
  2. 7%
  3. 8%
  4. 9%

Answer(s): D

Explanation:



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The following forecasts have been prepared for a new investment by Oxford Industries of $20 million with an 8-year life:

Assume that Oxford employs straight-line depreciation, and that they are taxed at 35%. Assuming an opportunity cost of capital of 14%, what is the NPV of this project, based on expected outcomes?

  1. $2,626,415
  2. $4,563,505
  3. $6,722,109
  4. $8,055,722

Answer(s): B

Explanation:

The first step is to calculate the annual cash flows from the project for the base case (the expected values). These may be calculated as shown:


This level of cash flow occurs for each of the 8 years of the project. The present value of an 8-year, $1 annuity is 4.639 at 14%. The NPV of the project is therefore given by:






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