Question

1.

An investment that costs $36,500 will produce annual cash flows of $12,210 for a period of 4 years. Given a desired rate of return of 10%, the investment will generate a (Do not round your PV factors and intermediate calculations. Round your answer to the nearest whole dollar):

negative net present value of $2,204.

positive net present value of $2,204.

negative net present value of $38,704.

positive net present value of $38,704.

2.

The amount of the depreciation tax shield can be calculated by multiplying the amount of depreciation expense by the tax rate.

True

False

3.

The cost of capital represents the maximum acceptable rate of return that a capital investment should earn.

True

False

Answer 1

1
Net present value = (12210*3.16987)-36500= $2204
Positive net present value of $2,204
2
True, The amount of the depreciation tax shield can be calculated by multiplying the amount of depreciation expense by the tax rate.
3
False, The cost of capital represents the minimum acceptable rate of return that a capital investment should earn.