# 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
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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