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Chapter_06 - Chapter 6 Problems 1-30 Input boxes in tan...

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Chapter 6 Problems 1-30 Input boxes in tan Output boxes in yellow Given data in blue Calculations in red Answers in green NOTE: Some functions used in these spreadsheets may require that the "Analysis ToolPak" or "Solver Add-in" be installed in Excel. To install these, click on "Tools|Add-Ins" and select "Analysis ToolPak and "Solver Add-In."
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Chapter 6 Question 1 Input area: Year Cash Flow (A) Cash Flow (B) 0 $(7,500) $(5,000) 1 4,000 2,500 2 3,500 1,200 3 1,500 3,000 Required payback 2 Discount rate 15% Output area: a) Project A Payback 2.000 Project A Accept Project B Payback 2.433 Project B Reject b) Project A NPV $(388.96) Project A Reject Project B NPV $53.83 Project B Accept Accept Project B because it has a greater NPV.
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Chapter 6 Question 2 Input area: Annual cash inflow $840 # of years 8 Initial cost $3,000 . Output area: Payback period 3.57
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Chapter 6 Question 3 Input area: Annual cash inflows: Year 1 $7,000 Year 2 7,500 Year 3 8,000 Year 4 8,500 Discount rate 14% Initial cost $8,000 . Output area: Discounted payments: Year 1 $6,140.35 Year 2 $5,771.01 Year 3 $5,399.77 Year 4 $5,032.68 Payback period 1.32
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Chapter 6 Question 4 Input area: Annual cash flow $2,100 Discount rate 0% Initial cost $10,000 # of years 6 . Output area: Year 0 $(10,000.00) 1 2,100.00 2 2,100.00 3 2,100.00 4 2,100.00 5 2,100.00 6 2,100.00 Payback period 4.76 Discounted Cash Flow
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Chapter 6 Question 5 Input area: Year 1 Year 2 Gross Investment $16,000 $16,000 $16,000 Accumulated Depreciation - 4,000 8,000 Net investment $16,000 $12,000 $8,000 Average net income $4,500 Output area: AAR 56.25% Purchase date
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Year 3 Year 4 $16,000 $16,000 12,000 16,000 $4,000 $- .
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Chapter 6 Question 6 Input area: Installation cost $8,000 # of years 4 Depreciation Year 1 $4,000 Year 2 $2,500 Year 3 $1,500 Pretax net income $2,000 Tax rate 25% . Output area: Aftertax net income $1,500 Year 1 Year 2 Gross Investment $8,000 $8,000 $8,000 Accumulated Depreciation - 4,000 6,500 Net investment $8,000 $4,000 $1,500 AAR 44.44% Purchase date
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Year 3 $8,000 8,000 $-
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Chapter 6 Question 7 Input area: Required Return 8% Annual cash flows: Year 0 $(8,000) Year 1 $4,000 Year 2 $3,000 Year 3 $2,000 . Output area: IRR 6.93% Accept/Reject Reject
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Chapter 6 Question 8 Input area: Annual cash flows: Project A Project B Year 0 $(2,000) $(1,500) Year 1 $1,000 $500 Year 2 $1,500 $1,000 Year 3 $2,000 $1,500 . Output area: Project A IRR 47.15% Project B IRR 36.19%
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Chapter 6 Question 9 Input area: Required Return 15% Annual cash flows $40,000 Costs $160,000 # of years 7 . Output area: Profitability index 1.0401
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Chapter 6 Question 10 Input area: Annual cash flows: Project Alpha Project Beta Year 0 $(500) $(2,000) Year 1 $300 $300 Year 2 $700 $1,800 Year 3 $600 $1,700 Discount rate 10% . Output area: PI for Alpha 2.604 PI for Beta 1.519 Accept Alpha since it has a larger profitability index. However, remember the profitability index can lead to incorrect decisions when evaluating mutually exclusive projects.
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Chapter 6 Question 11 Input area: Annual cost I Required return R Pays C # of years N Output area: To have a payback equal to the project's life, given C is a constant cash flow for N years, C = I/N To have a positive NPV, I < C(PVIFA R%,N ).
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