The following question is taken from the June 2013 exam paper.A project has an initial outflow of $12,000 followed by six equal annual cash inflows, commencing in oneyear’s time. The payback period is exactly four years. Thec ost of capital is 12% per year.What is the project’s net present value (to the nearest $)?
A、$333
B、-$2,899
C、-$3,778
D、-$5,926
A、$333
B、-$2,899
C、-$3,778
D、-$5,926
【参考答案及解析】
The correct answer is A.A four year payback period implies an (equal) annual cash flow of $12,000 + 4 years = $3,000 per year. As these cash flows run for 6 years the NPV is equal to $333 ( -$12,000 + annuity factor for 6 years @ 12% x $3,000 = -$12,000 + 4.111 x $3,000 = $333). Alternative C is based upon an incorrect calculation of annual cash flow ($12,000 + 6 years = $2,000 per year), suggesting a misunderstanding of the payback method.In alternative B the NPV was based on a project life of 4 years rather than 6 suggesting a failure to read the question carefully.Finally alternative D's NPV was based upon a combination of the other two distracters, that is, an annual cash flow of $2,000 for 4 years.
The correct answer is A.A four year payback period implies an (equal) annual cash flow of $12,000 + 4 years = $3,000 per year. As these cash flows run for 6 years the NPV is equal to $333 ( -$12,000 + annuity factor for 6 years @ 12% x $3,000 = -$12,000 + 4.111 x $3,000 = $333). Alternative C is based upon an incorrect calculation of annual cash flow ($12,000 + 6 years = $2,000 per year), suggesting a misunderstanding of the payback method.In alternative B the NPV was based on a project life of 4 years rather than 6 suggesting a failure to read the question carefully.Finally alternative D's NPV was based upon a combination of the other two distracters, that is, an annual cash flow of $2,000 for 4 years.