Tag: Discounted Cash Flow

Alex Trading plc has £5M to invest and has identified the following the following five projects:

• project number 1 — £5M capital required — £1.4M NPV of project
• project number 2 — £4M capital required — £1.2M NPV of project
• project number 3 — £3M capital required — £1.0M NPV of project
• project number 4 — £2M capital required — £0.8M NPV of project
• project number 5 — £1M capital required — £0.5M NPV of project

Which projects should Alex Trading plc select?

Select ONE answer:

1. Project 1 Only
2. Project 2 and 5
3. Project 2 and 4
4. Project 3 and 5

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct
2. Not correct
3. Correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

Alex Trading Ltd is evaluating whether to invest in a project.

The table shows estimates for the project with a discount factor (8%)

initial investment
year 0 – £58,500 == > DCF 1.000

projected cash flows
year 1 – £37,300 == > DCF 0.926
year 2 – £21,200 == > DCF 0.857
year 3 – £19,500 == > DCF 0.794

What is the net present value (NPV) of the project to Alex Trading Ltd?

Select ONE answer:

1. -£19,500
2. -£9,691
3. +£9,691
4. +£19,500

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct
2. Not correct
3. Correct – Minus £58,500 + (£37,300 * 0.926) + (£21,200 * 0.857) + (£19,500 * 0.794)
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.