HW+3+Solutions - IOE 201 Winter 2007 Homework 3 Solution...

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IOE 201 Winter 2007 Homework 3 Solution Key 7.8) Classification of investment projects (a) Simple projects: A, B and D Nonsimple projects: C (b) Solved using excel: =IRR(values, guess) where values are the net cash flows given for each project. Project A: * 21.21% i = Project B: * 56.78% i = Project C: * 0.91% or 283.08% i = Project D: * 154.76% i = (c) Use the PW plot command provided in Cash Flow Analyzer, or you may use the Excel’s Chart Wizard. Project A -200.0 0.0 200.0 400.0 600.0 800.0 1000.0 -0.02 0 0.02 0.04 0.06 0.08 0.1 0.12 0.14 0.16 0.18 0.2 0.22 0.24 Interest Rate Present Worth Project B -100 0 100 200 300 400 500 600 0.25 0.28 0.31 0.34 0.37 0.4 0.43 0.46 0.49 0.52 0.55 0.58 Interest Rate PW IRR = 0.2121 IRR = 0.5678
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Project C -1000.0 -500.0 0.0 500.0 1000.0 1500.0 2000.0 -0.1 0.15 0.35 0.55 0.75 0.95 1.15 1.35 1.55 1.75 1.95 2.15 2.35 2.55 2.75 2.95 Interest Rate PW Project D -1000.0 0.0 1000.0 2000.0 3000.0 4000.0 5000.0 6000.0 7000.0 0 0.3 0.45 0.6 0.9 1.05 1.2 1.5 Interest Rate 7.15) Also find the PW(MARR) for a-c. Does IRR and PW give you the same decision? (a) ( ) $20 $8( / , ,1) $17( / , ,2) $19( / , ,3) $18( / , ,4) $10( / , ,5) $3( / , ,6) 0 PW i P F i P F i P F i P F i P F i P F i = - + + + + + + = This is a simple investment. Therefore, * IRR 60.52%. i = = Since IRR 18%, the project is acceptable . PW(18%) = -$20 + $8(0.8475) + $17(0.7182) + $19(0.6068) + $18(0.5158) +
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This note was uploaded on 09/15/2008 for the course IOE 201 taught by Professor Maull during the Spring '07 term at University of Michigan.

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HW+3+Solutions - IOE 201 Winter 2007 Homework 3 Solution...

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