PS5_Solution

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

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
(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.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

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.

Page1 / 4

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

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online