- CFA Exams
- CFA Level I Exam
- Topic 3. Corporate Issuers
- Learning Module 5. Capital Investments and Capital Allocation
- Subject 2. Capital Allocation
CFA Practice Question
A corporation has the following opportunity to invest in a project with a return of $77,000 in one period. The current investment is $69,000. The financial market rate is 12%. What is the NPV and the investing decision?
B. $280; yes
C. -$250; no
A. $250; yes
B. $280; yes
C. -$250; no
Correct Answer: C
NPV = -69,000 + (77,000/1.12) = -69,000 + 68,750 = -250
User Contributed Comments 16
| User | Comment |
|---|---|
| Done | You have to know how to use your calculator for these problems |
| soarer1 | How do you do this on th BAII Plus? |
| hannovanwyk | HP 10 B so much easier with these calculations than 12c, just a pity they not permitted... |
| JimM | On a BAII Plus: Hit CF 69000 / change sign / Enter (this is CFo, initial cash flow; it's negative 'cause it's an outflow) Down arrow to see C01 (1st period cash flow) 77000 / Enter (positive 'cause it's an inflow) (F01 = 1; single cash inflow of that size) Hit NPV 12 / Enter (this is I, interest rate) Down arrow to see NPV Hit CPT (compute) Result = -250 |
| johnowens | wow, thats a long way about it how about just... PV FCF = 77,000/1 + 12% = 68,750 thats 250 less than the outlay |
| mwali | Can someone please go thru the calculation of NPV using BAII plus. I have been trying the procedures by others but it does not seem to work out.JimM please assist |
| lavalyn | The BA II manual is not bad. You should generally use [2nd][Clr work] before any new calculation. Press CF to enter the cash flow worksheet, clear previous work, then use the instructions by JimM. |
| peteypete | Its not hard if you know the formula and past high school math. |
| EMerkert | Much easier for these simple problems to know the math, and less likely to punch an incorrect button on the calc. |
| Nomni | Can someone assist if you're using HP 12c Platinum |
| dipu617 | BA II Plus: CF0: -69000 [enter] CF1: 77000 [enter] Press NPV I: 12% [enter] Press down arrow Press CPT NPV: -250 |
| papajeff | Doing the quant section first will really help, these calculations are simple if you have practiced using your calculator and understand the theory. |
| johntan1979 | Simple questions like this, don't waste your time using TI BA II Plus. Just remember the formula. It's only 1 period, so it's the 1 period's return over 1+0.12 minus initial investment. |
| jonan203 | Nomni: 69,000 <CHS><g><CFo> 77,000 <g><CFj> 12 <i> 1 <n> <f><NPV> = -250 |
| Bududeen | good job jonan203 |
| Freddie33 | All ya numpties doing dumb shit with calculators when I worked out it had to be negative in 5 seconds and I'm dum |