CFA Practice Question

There are 410 practice questions for this study session.

CFA Practice Question

A project has the following annual cash flows:

CF1 = 24,000; CF2 = 12,700; CF3 = 15,000; CF4 = -10,000

What is the maximum amount a firm should invest in the project if it requires a risk-adjusted 12% rate of return?
A. $35,874
B. $41,700
C. $48,585
Explanation: The maximum a firm should pay is the present value of the project's cash flows discounted at 12%. Using a calculator's cash flow keys, PV @ 12% = 35,874

User Contributed Comments 5

User Comment
emma51 Anyone knows how to use the BAII Plus for this question?
Nitishm I calculated the NPV as normal on the BAII Plus. I used 0 for CF0 and I= 12. This gave me 35,874.
rjdelong you could also just add up the cash flows as they are:
24+12.7+15-10=41.7 since that is answer B its got to be less than that if they need a 12% return...
rjdelong CF 2nd CLRWORK Downarrow C01=24,000 ENTER Downarrow F01=1 Downarrow C02=12,700 ENTER ... C04=10,000 +|- Enter 2nd Quit NPV I=12 Enter Downarrow CPT
lighty0770 there is no initial cash outlay therefore C0=0
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