Homework 6 - Fall 2008 Engineering 120 Industrial...

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Fall 2008 Engineering 120 Industrial Engineering & Operations Research October 10, 2008 Page 1 of 2 Homework #6 1. Year Project A Project B Project C Project D Project E Project F 0 -1000 -1000 -1000 -1000 -1000 -1000 1 1000 100 400 500 400 500 2 200 300 500 400 500 3 300 200 500 400 10000 4 400 100 400 5 500 500 400 a. Find the payback period for each project. b. Find the NPV for each project. The required rate of return is 10%. c. Explain why the payback period provides misleading information about the following? i. Project A. ii. Project B versus Project C. iii. Project D versus Project E. iv. Project D versus Project F. d. Now calculate the discounted payback period for each project. Does this resolve any of the misleadings mentioned in part (c)? 2. Consider the following two projects for which the required rate of return is 10%: 0 1 2 3 4 Project A -200 80 80 80 80 Project B -200 0 0 0 400 a. Find the IRR and NPV corresponding to each project. b. Suppose that the two projects are not mutually exclusive. Which project(s) would you accept?
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Homework 6 - Fall 2008 Engineering 120 Industrial...

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