HW#1_Excel_Problem_Set_Solution

# HW#1_Excel_Problem_Set_Solution - Internal Rate of Return...

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0% 2% 4% 6% 8% 10% 12% 14% 16% \$(2,000,000) \$(1,000,000) \$- \$1,000,000 \$2,000,000 \$3,000,000 \$4,000,000 \$5,000,000 \$6,000,000 \$7,000,000 \$8,000,000 Internal Rate of Return Discount Rate NPV

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Discount Rate 12.00% Growth in Sales (%) 0% Growth in Expenses(%) 0.0% YEAR 1 2 3 4 operating Costs/unit 5 0.95 0.95 0.95 Total Operating Costs \$500,000 \$4,000,000 \$4,000,000 \$4,000,000 Fixed costs \$200,000 \$200,000 \$200,000 \$200,000 Total Costs \$700,000 \$4,200,000 \$4,200,000 \$4,200,000 Total Cost per Unit \$7.00 \$1.00 \$1.00 \$1.00 Revenues Units Sold 100,000 4,200,000 4,200,000 4,200,000 Price \$1 \$1 \$1 \$1 Revenues \$100,000 \$4,200,000 \$4,200,000 \$4,200,000 Net Cash Flow \$(600,000) \$- \$- \$- PV \$(535,714) \$- \$- \$- Alternative PV formula 535,714 - - - One Time Cash Flows year PV Initial Investment \$(13,000,000) 0 \$(13,000,000) Working Capital \$(500,000) 0 \$(500,000) salvage \$- 10 \$- Return of WC \$500,000 10 \$160,987 NPV NPV \$(13,874,728) Internal Rate of Return Err:523 Year 0 Cash Flows \$(13,500,000) Discount Rate (%) NPV 0% \$7,300,000 2% \$5,402,658 4% \$3,790,780 6% \$2,413,731 8% \$1,230,920 10% \$209,622 12% \$(676,683) 14% \$(1,449,599)
5 6 7 8 9 10 0.95 0.95 0.95 0.95 0.95 0.95 \$4,000,000 \$4,000,000 \$4,000,000 \$4,000,000 \$4,000,000 \$4,000,000 \$200,000 \$200,000 \$200,000 \$200,000 \$200,000 \$200,000 \$4,200,000 \$4,200,000 \$4,200,000 \$4,200,000 \$4,200,000 \$4,200,000 \$1.00 \$1.00 \$1.00 \$1.00 \$1.00 \$1.00 4,200,000 4,200,000 4,200,000 4,200,000 4,200,000 4,200,000 \$1 \$1 \$1 \$1 \$1 \$1 \$4,200,000 \$4,200,000 \$4,200,000 \$4,200,000 \$4,200,000 \$4,200,000 \$- \$- \$- \$- \$- \$- \$- \$- \$- \$- \$- \$- - - - - - - 1 2 3 4 5 6 7 \$(600,000) \$- \$- \$- \$- \$- \$-

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8 9 10 \$- \$- \$500,000
Cost Over-run Page 5 -14950000

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Sales Growth (wrong) Page 6 0.05
Interest Rate Paid to Bank 8% Building Costs \$13,000,000 Working capital \$500,000 Total Startup costs \$13,500,000 % Debt 100% Total amount financed \$13,500,000 Years financed 10 Year 1 2 3 4 Annual Net Cash Flows \$(600,000) \$- \$- \$- Principle Payment (\$931,898) (\$1,006,450) (\$1,086,966) (\$1,173,923) Interest Payment (\$1,080,000) (\$1,005,448) (\$924,932) (\$837,975)

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## This homework help was uploaded on 02/20/2009 for the course AEM 4270 taught by Professor Gloy,b.a. during the Spring '08 term at Cornell University (Engineering School).

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HW#1_Excel_Problem_Set_Solution - Internal Rate of Return...

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