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Chapter 9

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					 Chapter 9
Problems 1, 2, 3, 4, 5, 8, 11, 17


 Input boxes in tan
 Output boxes in yellow
 Given data in blue
 Calculations in red
 Answers in green
     A   B           C              D          E
1            Chapter 9
2            Question 1
3
4            Input area:
5
6
7                   Year           Cash flow
8                    0         $     (4,800)
9                    1                1,200
10                   2                2,500
11                   3                3,400
12                   4                1,700
13
14
15           Output area:
16
17
18            Payback period            2.32
19
Chapter 9
Question 2

Input area:


Annual cash inflow         $840
# of years                    8
Initial cost             $3,000
                     .

Output area:


Payback period             3.57
Chapter 9
Question 3

Input area:


   Year        Cash Flow (A)   Cash Flow (B)
    0          $     (50,000) $     (70,000)
    1                 30,000           9,000
    2                 18,000         25,000
    3                 10,000         35,000
    4                  5,000        425,000

Required payback                          3


Output area:


Project A Payback                     2.200
Project A                            Accept

Project B Payback                      3.002
Project B                             Reject
Chapter 9
Question 4

Input area:


Annual cash inflows:
Year 1             $        7,000
Year 2                      7,500
Year 3                      8,000
Year 4                      8,500

Discount rate                 14%

Initial cost          $     8,000
                  .

Output area:


 Discounted payments:
Year 1            $       6,140.35
Year 2            $       5,771.01
Year 3            $       5,399.77
Year 4            $       5,032.68

Payback period                1.32
Chapter 9
Question 5

Input area:


Annual cash flow       $    2,100
Discount rate                  0%
Initial cost           $   10,000
# of years                      6
                   .

Output area:


                      Discounted
               Year    Cash Flow
                  0 $ (10,000.00)
                  1     2,100.00
                  2     2,100.00
                  3     2,100.00
                  4     2,100.00
                  5     2,100.00
                  6     2,100.00

Payback period               4.76
Chapter 9
Question 8

Input area:


Required Return                   11%
Required Return                   30%
Annual cash flows:
Year 0                   $    (30,000)
Year 1                   $     20,000
Year 2                   $     14,000
Year 3                   $     11,000
                     .

Output area:


NPV at                            11%
                         $   7,423.84
Accept./Reject                 Accept

NPV at                             30%
                         $   (1,324.53)
Accept/Reject                    Reject
Chapter 9
Question 11

Input area:


Annual cash flows:
Year 0                   $     (8,000)
Year 1                   $      3,200
Year 2                   $      4,000
Year 3                   $      6,100

Discount rate                     0%
                     .

Output area:


NPV                      $   5,300.00
   Chapter 9
   Question 17

   Input area:


   Annual cash flows:                  A               B
   Year 0                     $       (210,000)   $    (21,000)
   Year 1                     $         15,000    $     11,000
   Year 2                     $         30,000    $      9,000
   Year 3                     $         30,000    $     11,000
   Year 4                     $        370,000    $      9,000

   Required return                                        15%


   Output area:


a. Payback (A)                                            3.36
   Payback (B)                                            2.09
   Payback criterion implies accept                   Project B
   because it pays back sooner.

b. Discounted cash flows
                       Year       A                    B
                          0 $ (210,000.00)        $ (21,000.00)
                          1     13,043.48             9,565.22
                          2     22,684.31             6,805.29
                          3     19,725.49             7,232.68
                          4    211,548.70             5,145.78

   Discounted payback (A)                                 3.73
   Discounted payback (B)                                 2.64
   Discounted payback criterion, implies accept       Project B
   because it pays back sooner.

c. NPV (A)                                        $ 57,001.98
   NPV (B)                                        $ 7,748.97
   NPV criterion implies accept                      Project A
   because it has a higher NPV.
d. IRR (A)                                                22.97%
   IRR (B)                                                32.73%
   IRR decision rule implies accept                     Project B
   because its IRR is greater.

e. PI (A)                                                   1.271
   PI (B)                                                   1.369
   Profitability index criterion implies accept         Project B
   because its PI is larger.

f. The only decision rule that can rank mutually exclusive projects
   is NPV: therefore you should accept                  Project A

				
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