certified public accountant FIN Reddit Questions

A company is considering a project for investment which will cost $70,000 now and another $10,000 in year five.

The company has a cost of capital of 8%. The project has the following discounted cash flows:

YearDiscounted Cash Flows

$

123,148

230,007

319,846

414,701

What is its discounted payback period in years and months (to the nearest month)?

Pecking order theory states that, when financing new investment opportunities, a business will prefer to use:

1. Internal finance rather than external finance.

2. Equity rather than debt.

Which ONE of the following combinations (true/false) concerning the above statements is correct?

Arcturus Co has recently purchased goods costing $12,000 from a supplier. The supplier has offered credit terms of 3/15, net 40. If a cash discount is taken, payment will be made on the last possible day. The opportunity cost of funds for Arcturus Co is 30%.

What is the net saving, or net cost, at the normal time of payment of taking a cash discount?

A business is considering various investment projects, with each expected to have an initial cash outflow followed by positive cash inflows over the rest of its life. The operations director has stated that the net present value and internal rate of return methods will, if correctly applied to each individual project, always give projects with the same characteristics:

1. Accept or reject decision for individual projects

2. Priority ranking for those projects that are acceptable

Which of the following combinations (true/false) is correct?