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# Book answers - Answers to selected problems from the text p...

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Answers to selected problems from the text p. 293 / problem 3 the PV(1 million oz of gold in 8 years) = \$280*1mil = 280 mil the price of gold in 8 years will be 280*1.055 8 = \$429.71 per oz p. 270 / problem 11 NPV Piston = \$201 NPV Turbo = \$319 this is the preferable plane p. 270 / problem 10 a. the expected NPV is = -100 + 0.5*140 + 0.5*50 = -5 mil do not build b. now the expected NPV is = -100 + 0.5*140 + 0.5*90 = 15 mil p. 239 / problem 2 a. r nominal = 0.06 + 0.9*0.08 = 0.132 (nominal rate) (1+r nominal ) = (1+r real )*(1+i); then r real = 0.0885 (real rate) b. r proposed = 0.2 + 0.0885 = 0.2885 NPV 1 = -10 mil + 3 mil / 1.2885 + 3 mil / 1.2885 2 + … + 3 mil / 1.2885 10 = -425,800 NPV 2 = -10 mil + 2 mil / 1.2885 + 2 mil / 1.2885 2 + … + 2 mil / 1.2885 15 = -3,222,300 c. expected income from well 1: 0.2*0 + 0.8*3 = 2.4 mil expected income from well 2: 0.2*0 + 0.8*2 = 1.6 mil NPV 1 = -10 mil + 2.4 mil / 1.0885 + 2.4 mil / 1.0885 2 + … + 2.4 mil / 1.0885 10 = 5,504,600 NPV 2 = -10 mil + 1.6 mil / 1.0885 + 1.6 mil / 1.0885 2 + … + 1.6 mil / 1.0885 15 = 3,012,100 d. Yes there is. One can find it by solving for the discount rate when the discount value of the cash flows is made equal to the NPV calculated in b. It will be unique since the project cash flows change sign only once.

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p. 239 / problem 13 a. 20.5%; NPV(project) = \$3,093 b. CEQ 1 = 35.52; CEQ 2 = 47.31; CEQ 3 = 35.01; c.
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