IMANET Exam CMA Topic 5 Question 81 Discussion

Actual exam question for IMANET's CMA exam

Question #: 81
Topic #: 5

The Hopkins Company has estimated that a proposed project's 10-year annual net cash benefit, received each year end. will be $2,500 with an additional terminal benefit of $5,000 at the end of the 10th year. Assuming that these cash inflows satisfy exactly Hopkins' required rate of return of 8%, calculate the initial cash outlay

A$16,775

B$19,090

C$25,000

D$30,000

Show Suggested Answer

Suggested Answer: B

If the 8% return exactly equals the present value of the future flows ., NPV is zero), then simply determine the present value of the future inflows. Thus, Hopkins Company's initial cash outlay is $19,090 [($2,500)(PVIFA at 8% for 10 periods) + ($5J00)(PVlF at 8% for 10 periods ($2,500)(6.710) + ($5,000)(.463)].

by Ceola at Feb 08, 2024, 05:44 AM

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25%

7 months ago

I think the initial cash outlay could be around $25,000.

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