PS5
Fin 332
(1)
Project K has a cost of $52,125, its expected net cash inflows are $12,000 per year for 8 years,
and its cost of capital is 12 percent.
a) What is the project’s payback period?
b) What is the project’s discounted payback period?
c) What is the project’s NPV?
d) What is the project’s IRR?
e) What is the project’s MIRR?
(2)
Ed E is considering including two pieces of equipment, a truck & an overhead pulley system,
in this year’s capital budget. The projects are mutually exclusive. The cash outlay (cost) for the
truck is
$13,000
, & that for the pulley system is
$22,430
. Aftertax cash flows, including
depreciation, are as follows:
Year
Truck
Pulley
1
$5,100
$7,500
2
$5,100
$7,500
3
$5,100
$7,500
4
$5,100
$7,500
5
$5,100
$7,500
What is the crossover rate, and what is its significance? Explain carefully. (Hint: Think NPV rule
versus IRR rule when choosing between the two projects.)
(3)
The UC is deciding whether or not it should open a strip mine, the net cost of which is $4.4
million. Net cash inflows are expected to be $27.7 million, all coming at the end of Year 1. The
land must be returned to its natural state at a cost of $25 million, payable at the end of Year 2.
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 Spring '08
 DASILVA
 Cost Of Capital, Net Present Value, Operating cash flow, net cash inflows

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