Morrisey Company has two investment opportunities. Both investments cost $5,500 and will provide the same total future cash inflows. The cash receipt schedule for each investment is given below:
| Investment I | Investment II | |
| Period 1 | $1,250 | $1,250 |
| Period 2 | $1,250 | $2,300 |
| Period 3 | $2,250 | $3,350 |
| Period 4 | $4,400 | $2,250 |
| Total | $9,150 | $9,150 |
What is the net present value of Investment II assuming a 9% minimum rate of return?
a. $7,263.
b. $9,150.
c. $1,763.
d. $(7,053).
Dynamics Telecommunications Corp. has made an investment in another company that will guarantee it a cash flow of $26,000 each year for the next five years. If the company uses a discount rate of 20 percent on its investments, what is the present value of this investment?
You are a manager considering investing in a project that is estimated to pay the following cash flows: Time 0 (today): $0 At the end of year 1: $100 At the end of year 2: $300 At the end of year 3: $300 At the end of year 4: $300 At the end of year 5: $500 At the end of year 5, the project will be terminated at no additional cost or profit. What is the present value of the project assuming that your discount rate (required return) is 12%?
Suppose a small firms begins its operation by buying a shop that costs 90,000. It plans to write off linearly this single up-front investment over three years. In each and every one of the following years the firm expects to earn 60,000 in revenue per year and for its workforce and merchandise it will face costs of 20,000 per year. The corporate tax rate is 30% and the market interest rate is expected to be 2% forever. The firm has no plans to take on debt but plans to remain a pure equity firm forever.
What is the net present value (NPV) of this new firm?
