Multiple choice

1.  You are given the following data for year-1. Revenue = $43; Total costs = $30; Depreciation = $3; Tax rate = 30%. Calculate the operating cash flow for the project for year-1.  

a. $7 

b. $10 

c. $13 

d. None of the above 

2.  A project has an initial investment of 100. You have come up with the following estimates of the projects with cash flows.    

If the cash flows are perpetuities and the cost of capital is 10%. What does a sensitivity 

analysis of NPV (no taxes) show?  

a. -50, 20, +100 

b. -100, -50, +80 

c. -50, +50, +70 

d. None of the above 

3.  You are given the following data for year-1: Revenues = 100, Fixed costs = 30; Total 

variable costs = 50; Depreciation = $10; Tax rate = 30%. Calculate the after tax cash flow for the project for year-1.  

a. $17 

b. $7 

c. $10 

d. None of the above 

4.  A project has the following cash flows: C0= -100,000; C1= 50,000; C2= 150,000; C3= 100,000. If the discount rate changes from 12% to 15%, what is the change in the NPV of the project (approximately)?  

a. 12,750 increase 

b. 12,750 decrease 

c. 122,650 increase 

d. 135,400 decrease 

5.  You have come up with the following estimates of project cash flows:    

The cash flows are perpetuities and the cost of capital is 8%. What does a sensitivity analysis of NPV (without taxes) show?  

a. 25, +232.50, +440 

b. 100, +500, +800 

c. 90, -55, -20 

d. One of the above 

6.  A project has an initial investment of $150. You have come up with the following estimates of revenues and costs. Calculate the NPV assuming that cash flow and perpetuities. (No taxes.) (Cost of capital =10%)    

a. 50, -100, +400 

b. 50, +300, +500 

c. 100, +150, +350 

d. One of the above 

7.  A project requires an initial investment in equipment of $90,000 and then requires an 

investment in working capital of $10,000 at the beginning (t = 0). The project is expected to produce sales revenues of $120,000 for three years. Manufacturing costs are estimated to be 60% of the revenues. The assets are depreciated using straight-line depreciation. At the end of the project, the firm can sell the equipment for $10,000. The corporate tax rate is 30% and the cost of capital is 15%. Cash flows from the project are:  

a. CF0: -90,000; CF1: 12,600; CF2: 12,600; CF3: 29,600 

b. CF0: -100,000; CF1: 42,600; CF2: 42,600; CF3: 59,600 

c. CF0: -100,000; CF1: 42,600; CF2: 42,600; CF3: 42,600 

d. None of the above 

8.  A project requires an initial investment in equipment of $90,000 and then requires an 

investment in working capital of $10,000 at the beginning (t = 0). The project is expected to produce sales revenues of $120,000 for three years. Manufacturing costs are estimated to be 60% of the revenues. The assets are depreciated using straight-line depreciation. At the end of the project, the firm can sell the equipment for $10,000. The corporate tax rate is 30% and the cost of capital is 15%. Calculate the NPV of the project:  

a. 3840 

b. 8443 

c. -2735 

d. None of the above 

9.  A project requires an initial investment in equipment of $90,000 and then requires an 

investment in working capital of $10,000 at the beginning (t = 0). The project is expected to produce sales revenues of $120,000 for three years. Manufacturing costs are estimated to be 60% of the revenues. The assets are depreciated using straight-line depreciation. At the end of the project, the firm can sell the equipment for $10,000. The corporate tax rate is 30% and the cost of capital is 12%. Calculate the NPV of the project:  

a. 14,418 

b. 8443 

c. -2735 

d. None of the above 

10. A project requires an initial investment in equipment of $90,000 and then requires an 

investment in working capital of $10,000 at the beginning (t = 0). The project is expected to produce sales revenues of $120,000 for three years. Manufacturing costs are estimated to be 60% of the revenues. The assets are depreciated using straight-line depreciation. At the end of the project, the firm can sell the equipment for $10,000. The corporate tax rate is 30% and the cost of capital is 15%.What would the NPV of the project be if the revenues were higher by 10% and the costs were 65% of the revenues?  

a. $8443 

b. $964 

c. $5566 

d. None of the above