VEE FINANCE 5A.FINAL TEST 2026\2027.
You are interested in investing in a lemonade stand company.
Heidi, the CEO of the company, presents the pro forma statement for the lemonade business:
Year 1 2 3
Revenues 200 300 300
Labor costs 60 90 90
Rent for equipment 50 50 50
Earnings before tax 90 160 160
You estimate the company will pay a tax rate of 25%.
Assuming the annual discount rate is 10%, determine the maximum amount you would invest in
this project now.
A) 81.82
B) 250.69
C) 334.26
D) 410.00
E) 655.15
Year 1 2 3
Earnings before tax 90 160 160
Earnings after tax 67.50 120.00 120.00
(67.5/(1+0.10))+(120/((1+0.10)^2))+(120/((1+0.10)^3))−Initial investment>0
Initial investment<250.69
B) 250.69
Your company is exploring a new project with a required return of 10%. An analysis has
calculated the IRR for the project to be 8%. Your best move would be to:
A. Reject the project, because the IRR is less than the required return.
, VEE FINANCE 5A.FINAL TEST 2026\2027.
B. Delay the project, because the IRR is greater than 0% but less than 10%.
C. Accept the project, because the IRR is greater than 0%.
D. Use the payback period approach instead.
E. Not enough information to make a decision.
A. Reject the project, because the IRR is less than the required return.
You are considering a project with the following expected cash flows:
Year Cash Flow
0 -100
1 50
2 50
3 50
The discounted payback period at 8% is closest to:
A) 2.00 years
B) 2.25 years
C) 2.75 years
D) 3.00 years
E) There is no discounted payback period
Year CF Discounted CF Cumulative Discounted CF
0 -100 -100 -100
1 50 46.296 -53.704
2 50 42.867 -10.837
3 50 39.692 28.855
2+(−10.837−0)/(−10.837−39.692)=2.273
B) 2.25 years
An investment of $20,000 will create a perpetual after-tax cash flow of $2,000. The required rate
of return is 8%.
You are interested in investing in a lemonade stand company.
Heidi, the CEO of the company, presents the pro forma statement for the lemonade business:
Year 1 2 3
Revenues 200 300 300
Labor costs 60 90 90
Rent for equipment 50 50 50
Earnings before tax 90 160 160
You estimate the company will pay a tax rate of 25%.
Assuming the annual discount rate is 10%, determine the maximum amount you would invest in
this project now.
A) 81.82
B) 250.69
C) 334.26
D) 410.00
E) 655.15
Year 1 2 3
Earnings before tax 90 160 160
Earnings after tax 67.50 120.00 120.00
(67.5/(1+0.10))+(120/((1+0.10)^2))+(120/((1+0.10)^3))−Initial investment>0
Initial investment<250.69
B) 250.69
Your company is exploring a new project with a required return of 10%. An analysis has
calculated the IRR for the project to be 8%. Your best move would be to:
A. Reject the project, because the IRR is less than the required return.
, VEE FINANCE 5A.FINAL TEST 2026\2027.
B. Delay the project, because the IRR is greater than 0% but less than 10%.
C. Accept the project, because the IRR is greater than 0%.
D. Use the payback period approach instead.
E. Not enough information to make a decision.
A. Reject the project, because the IRR is less than the required return.
You are considering a project with the following expected cash flows:
Year Cash Flow
0 -100
1 50
2 50
3 50
The discounted payback period at 8% is closest to:
A) 2.00 years
B) 2.25 years
C) 2.75 years
D) 3.00 years
E) There is no discounted payback period
Year CF Discounted CF Cumulative Discounted CF
0 -100 -100 -100
1 50 46.296 -53.704
2 50 42.867 -10.837
3 50 39.692 28.855
2+(−10.837−0)/(−10.837−39.692)=2.273
B) 2.25 years
An investment of $20,000 will create a perpetual after-tax cash flow of $2,000. The required rate
of return is 8%.
