S2-Homework.doc

# S2-Homework.doc - 1 (\$30,000.00) \$15,000.00 \$15,000.00...

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Session 2-Homework Assignment Problem 4-34 Problem 4-40 Current Salary \$50,000.00 Year Payment Salary Growth Rate 2% 0 \$1,000,000.00 Return 8% 1 \$1,400,000.00 Salary Increase 4% 2 \$1,800,000.00 Deposit Length 40 3 \$2,200,000.00 4 \$2,600,000.00 Next Year's Salary \$52,000.00 5 \$3,000,000.00 Next Year's Deposit \$1,040.00 6 \$3,400,000.00 Present Value of 40 year deposits \$20,254.12 7 \$3,800,000.00 Money saved after 40 years (FV) \$440,011.02 8 \$4,200,000.00 9 \$4,600,000.00 10 \$5,000,000.00 Rate = 10% PV of years 1-10 = \$17,758,930.79 PV of winnings = \$18,758,930.79

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Problem 6-14 PV of Cash Flows Cash Flows Year Required Subsequent to Profitability Project 0 1 2 3 Return Initial Investment Index NPV @ 10%
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Unformatted text preview: 1 (\$30,000.00) \$15,000.00 \$15,000.00 \$15,000.00 10% \$37,302.78 1.24 \$7,302.78 2 (\$5,000.00) \$2,800.00 \$2,800.00 \$2,800.00 10% \$6,963.19 1.39 \$1,963.19 a. According to the PI decision rule, Robb Computer should accept Project 2 because it has the higher PI. b. According to the NPV decision rule, Robb Computer should accept Project 1 because it has the higher NPV. c. The PI ignores differences of scale for mutually exclusive projects. The PI for Project 2 is higher than Project 1; thus, because the PI is a ratio, the index misses the fact that Project 1 has a larger investment than Project 2 has....
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## S2-Homework.doc - 1 (\$30,000.00) \$15,000.00 \$15,000.00...

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