Question

QUESTION 7 Select the correct EXCEL programming to compute the net present value of the cash flow stream below. A C D 1 Interest Rate 5% 2 Period CF 4 ($500.00) $100.00 5 6 1 $300.00 7 2 $500.00 $250.00 4 10 11 A. -NPV(C2,C5:C9,1) B. NPV(C2,C5:C9) C. PV(C2, C5:C9) D. C5+NPV(C2,C6:C9) E. NPV(C2,C5:C9,1) 00 9 QUESTION 8 The future value (at the terminal year) of the following cash flow time line (figure below) was computed. (i5% per year) The revenue terms of the project then shifted so each payment occurs at the beginning of the year for 5 years. What must be done to convert the original result to reflect the new terms? 0 1 2 4 3 5 A. Multiply by 1.05 B. None in this list. The original result cannot be converted directly. C. Multiply by 0.05 D.Divide by 1.05 E. Divide by 0.05 QUESTION 9 A large factory is being constructed from "ground up". The preparation of the site, the design and construction of the building, and the design and installation of the equipment thereafter is expected to take 3 years. Investors are told that 3 equal payments at the end of each year are required to support the project. An investor wants to determine his opportunity cost of capital for this project, based on his position today. This particular investor earns an average of 12% per year on his investments. Which factor is appropriate for this investor's analysis? A. (P/A,12%,3) B. (F/A,12%,3) C. (A/P,12%,3) D. The correct factor designation is not in this list E.(A/F,12%,3) QUESTION 10 A 9-month internal project is being charged simple interest on a $10,000 loan at a rate of 2% per quarter for funds drawn from the corporate project account. Funds are not repaid until the project is complete. Upon completion, what will be owed? Enter your numeric result rounded to the nearest dollar without symbols ($) and without commas. QUESTION 11 Your project requires the cash flows outlined in the table below. How much must the financial controller set aside now to meet the project needs if the firm earns 10% per year (compounded anually) on its invested funds? Year Payment Required $50,000.00 $100,000.00 1 $100,000.00 2 $50,000.00 3 Express your answer as a positive number rounded to the nearest dollar and entered without $ symbols and commas. QUESTION 12 Suppose that an oil well is expected to produce 100,000 barrels (BBL) of oil during its first year of production. However, its subsequent production (or yield) is expected to decrease by 10% over the previous year's production for each year of production. The oil well has proven reserves to satisfy the project requirements. The price of oil is expected to start at $100 per barrel during the first year and increase 7% over the previous year's price. Determine the PRESENT WORTH of the anticipated revenue stream at an interest rate of 12% compounded annually over the next 7 years Enter the result rounded to the nearest dollar. Do not include commas or the $ symbol

Answer 1

Ans 7)

Present Value of the Cash flow stream can be calculated using Excel formula as below

NPW=NPV(Rate, Value1, Value2, ...,Value n)

If N cash flows are available from year 0 to year n-1)

Hence option A is correct response

Ans 8)

Cash flow at the end of year 1 will earn interest of (1.05)^4 till the end of 5th year
Cash flow at the end of year 2 will earn interest of (1.05)^3 till the end of 5th year
Likewise, Cash flow at the end of year 4 will earn interest of (1.05) till the end of 5th year

Likewise if these cash flows are at the beginning of each year then one more period is availed for each cash flow to earn the interest (1.05)

therefore required cash flow stream needed to multiply by 1.05

Option C is correct

Ans 10)

Principle is $10000 and rate per quarter is 2% therefore over the period of 9 months simple interest earned is 3*(0.02)*10000=600

Therefore total amount to be paid back is 10600

Ans 11)

Amount needs to keep today= PW of Annual Future Cash flow

=50000+100000/(1.1)+100000/(1.1)^2+50000/(1.1)^3=261119.46=261120

Ans 12)

Revenue in year 1=100000*100
Revenue in year 2=100000*(0.9)*100*(1.07)
Revenue in year 3=100000*(0.9)^2*100*(1.07)^2
Revenue in year 4=100000*(0.9)^3*100*(1.07)^3
Revenue in year 5=100000*(0.9)^4*100*(1.07)^4
Revenue in year 6=100000*(0.9)^6*100*(1.07)^6
Revenue in year 7=100000*(0.9)^7*100*(1.07)^7

PW of Future Revenue=Sum of discounted Future Revenues

=10000000(1+(1.07*0.9)+...(1.07*0.9)^7)
=10000000(6.0372)
=60372000

Ans 9)

(P/A, 12%,3) Option A is correct...(For this one i am little doubtful, Kindly check with others for Question 9)