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1. You are evaluating purchasing the rights to a project that will generate after tax expected cash flows of $90,000 at the end of each of the next five years, plus an additional $1,000,000 at the end of the fifth year as the final cash flow. You can purchase this project for $950,000. If your firm’s cost of capital (aka required rate of return) is 15%, what is the NPV of this project?
a. 500,000
b. 950,000
c. 106,000
d. 151,000
e. insufficient information to estimate an NPV

2. You are evaluating purchasing the rights to a project that will generate after tax expected cash flows of $90,000 at the end of each of the next five years, plus an additional $1,000,000 at the end of the fifth year as the final cash flow. You can purchase this project for $950,000. At this price, what rate of return would you earn on the investment (aka what is the internal rate of return)?
a. 10.3%
b. 7.7%
c. 9.6%
d. 52.6%
e. 15%
f. insufficient information to estimate a return rate

3. If accepting 1 project implies that you can NOT also accept another alternative project, we would say these 2 projects are:
a. mutually exclusive
b. independent
c. profitable
d. synergistic
e. none of the above

4. You are considering the purchase of an investment that would pay you $5,000 per year for Years 1 5, $3,000 per year for Years 6 8, and $2,000 per year for Years 9 and 10. If you require a 14 percent rate of return, and the cash flows occur at the end of each year, then what is the MOST you would be willing to pay for this investment?
a. $15,819.27
b. $21,937.26
c. $32,415.85