Assignment #6 answers

Assignment #6 answers - Answers to Assignment No. 6 Chapter...

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Answers to Assignment No. 6 Chapter 7- Questions and Problems: Answer to Q 13 Project at 2 percent discount rate Year Cash Flow ($) Discounted Cash Flow ($) @ 2 percent Cumulative Discounted Cash Flow ($) 0 -3000 -3000 -3000 1 800 784 -2216 2 800 768.8 -1447.2 3 800 753.6 -693.6 4 800 739.2 45.6 5 800 724.8 770.4 6 800 710.4 1480.8 NPV= 1480.8 Since the discounted cash flows become positive by Year 4, the project pays back sometime in the fourth year. Note that out of the total discounted cash flow of $739.20 in Year 4, the first $693.60 comes in by 693.60/739.20 = 0.94 year. Therefore, the discounted payback for the project is 3.94 years, and thus the project should be pursued. Project at 12 percent discount rate Year Cash Flow ($) Discounted Cash Flow ($) @ 12 percent Cumulative Discounted Cash Flow ($) 0 -3000 -3000 -3000 1 800 714.4 -2285.6 2 800 637.6 -1648.0 3 800 569.6 -1078.4
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4 800 508.8 -569.6 5 800 453.6 -116.0 6 800 405.6 289.6 NPV= 289.6 Since the discounted cash flows become positive by Year 6, the project pays back in 5 years + 116/405.6 = 5.28 years. Therefore, given the firm’s decision criteria of a
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This document was uploaded on 03/07/2011.

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Assignment #6 answers - Answers to Assignment No. 6 Chapter...

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