PS5_Solution

# PS5_Solution - PS5_Solution (1) a. \$52,125/\$12,000 =...

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(1) a. \$52,125/\$12,000 = 4.3438, so the payback is about 4 years. b. Project K's discounted payback period is calculated as follows: Annual Discounted @12% Period Cash Flows Cash Flows Cumulative 0 (\$52,125) (\$52,125.00) (\$52,125.00) 1 12,000 10,714.80 (41,410.20) 2 12,000 9,566.40 (31,843.80) 3 12,000 8,541.60 (23,302.20) 4 12,000 7,626.00 (15,676.20) 5 12,000 6,808.80 (8,867.40) 6 12,000 6,079.20 (2,788.20) 7 12,000 5,427.60 2,639.40 8 12,000 4,846.80 7,486.20 The discounted payback period is 6 + 60 . 427 , 5 \$ 20 . 788 , 2 \$ years, or 6.51 years. Alternatively, since the annual cash flows are the same, one can divide \$12,000 by 1.12 (the discount rate = 12%) to arrive at CF 1 and then continue to divide by 1.12 seven more times to obtain the discounted cash flows (Column 3 values). The remainder of the analysis would be the same. c. NPV = -\$52,125 + \$12,000[(1/i)-(1/(i*(1+i) n )] = -\$52,125 + \$12,000[(1/0.12)-(1/(0.12*(1+0.12) 8 )] = -\$52,125 + \$12,000(4.9676) = \$7,486.20. Financial calculator: Input the appropriate cash flows into the cash flow register, input I = 12, and then solve for NPV = \$7,486.68.

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## This homework help was uploaded on 04/18/2008 for the course FIN 332 taught by Professor Dasilva during the Spring '08 term at CSU Fullerton.

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PS5_Solution - PS5_Solution (1) a. \$52,125/\$12,000 =...

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