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1. A company is considering whether to invest in a new
project that requires an initial outlay of $100,000 and is
expected to generate net cash inflows of $30,000 per year
for five years. The company's cost of capital is 10%. What
is the net present value (NPV) of the project?
a) $50,210
b) $51,210
c) $52,210
d) $53,210*
Rationale: The NPV of the project is the sum of the present
values of the net cash inflows minus the initial outlay. The
present value of a net cash inflow of $30,000 per year for
five years at 10% is $113,210 (using a present value
annuity factor table or a financial calculator). The NPV of
the project is $113,210 - $100,000 = $53,210.
2. A company has the following information for the year
ended December 31, 2020:
Sales revenue: $500,000
Cost of goods sold: $300,000
Operating expenses: $100,000
Interest expense: $20,000
Tax rate: 30%
What is the company's net income for the year?
a) $56,000*
b) $80,000
c) $140,000
d) $200,000
Rationale: The net income for the year is the differenceÂ
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