Question

15.The ABC Resort is redoing its golf course at a cost of $782,000. It expects to generate cash flows of $406,000, $788,000 and $155,000 over the next three years. If the appropriate discount rate for the company is 12.0 percent, what is the NPV of this project (to the nearest dollar)?

Select one:

a. $394397

b. $319015

c. $201049

d. $1883015

16.ABC Limited has a stable sales track record but does not expect to grow in the future. Its last annual dividend was $6.73. If the required rate of return on similar investments is 15 percent p.a., what is the current share price? (to the nearest cent; don't use the $ sign)

17.The method which provides correct rankings of mutually exclusive projects, when the firm is not subject to capital rationing.is:

Select one:

A. Net present value

B. Internal rate of return

C. Payback period

D. All of the above

Answer 1

15.) b. $319,015

Year	Category	Value	IRR @ 12%		NPV @ 12%
		A	Formula	B	A x B
0	Payout	-$782,000	1	1.0000	-$782,000
1	Revenue	$406,000	1 / (1+12%)	0.8929	$362,500
2	Revenue	$788,000	1 / (1+12%)2	0.7972	$628,189
3	Revenue	$155,000	1 / (1+12%)3	0.7118	$110,326
				Overall NPV	$3,19,015

16.) Value of Share = Dividend per share / Required yield (rate of return)

Value of Share = 6.73 / 15%

Value of Share = 44.87 (rounded off to last cent)

17.) D. All of the above

In case of mutually exclusive projects, any of the three methods can be applied for ranking the projects depending on the firm's requirement. For example, the firm can opt for the Payback period if they have any particular timeline for acquiring their return from the investment. In case they are choosing the most profitable over any length of period, Net Present Value method or IRR could be followed.