# Test of 6200 Summer

Submitted By sunwei1262010
Words 293
Pages 2
14. A project will produce operating cash flows of \$45,000 a year for four years. During the life of the project, inventory will be lowered by \$30,000 and accounts receivable will increase by \$15,000. Accounts payable will decrease by \$10,000. The project requires the purchase of equipment at an initial cost of \$120,000. The equipment will be depreciated straight-line to a zero book value over the life of the project. The equipment will be salvaged at the end of the project creating a \$25,000 after-tax cash flow. At the end of the project, net working capital will return to its normal level. What is the net present value of this project given a required return of 14%?
A. \$3,483.48
B. \$16,117.05
C. \$27,958.66
D. \$32,037.86
E. \$49,876.02
CF0 = \$30,000 - \$15,000 - \$10,000 - \$120,000 = -\$115,000
C04 = \$45,000 -\$30,000 + \$15,000 + \$10,000 + \$25,000 = \$65,000
= \$27,958.66
CF0 -\$115,000
C01 \$45,000
F01 3
C02 \$65,000
F02 1
I = 14%
NPV CPT
\$27,958.66
12.
13. You are considering two loans. The terms of the two loans are equivalent with the exception of the interest rates. Loan A offers a rate of 7.45% compounded daily. Loan B offers a rate of 7.5% compounded semi-annually. Loan _____ is the better offer because ________:
A. A; you will pay less interest
B. A; the annual percentage rate is 7.45%
C. B; the annual percentage rate is 7.64%
D. B; the interest is compounded less frequently
E. B; the effective annual rate is 7.64%
; APR = 7.73 percent

; APR = 7.64 percent...