Winter 2011 - Homework 3

Winter 2011 - Homework 3 - years Calculate the discounted...

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Engineering 111 Winter 2011 Assignment #3 IRR, Payback Period, and Costs Instructions: Submit the file through Courseweb with your name and student ID as the document title (i.e. Joe_Bruin_1020203.doc or Joe_Bruin_1020203.pdf). You must follow this convention to receive full credit. You must also show all your work for any questions that require calculations. Back Story: You arrive home from work and sit on your apartment couch. You sigh to yourself, and begin to reminisce about your days in the King-Bristow Graduate School of Finance and Engineering. You had more time then, enough time to start a side business and enjoy life at the same time! In a rush of sentimentality, you walk over to your closet and start digging through some old financial documents. Maybe it’s time to look at your old documents and learn from your old mistakes! Assignment: [1] Project A has an initial cost of $3000 at year 0, and promises to make you back $600 a year for 5
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Unformatted text preview: years. Calculate the discounted payback period, if the discount rate is 2%. [2] Project B has an initial cost of $1200 at year 0, with promises to make you $275 a year for 4 years. What is the internal rate of return of the project? If the required rate of return is 8%, is this an investment which is worth undertaking? [3] Suppose you reassessed Project B's earnings, and readjusted to the following table of projected cash flows: Year 0 Year 1 Year 2 Year 3 Year 4-1200 340-230 250 800 Would the IRR be an appropriate tool for assessing the project? Why or why not? If not, what would you use instead? [4] You read in the newspaper recently that the FOMC raised rates by 50 basis points. What could be some scenarios driving this move? What would be the consequences of raising rates?...
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This note was uploaded on 03/28/2011 for the course ENGR 110 taught by Professor . during the Winter '10 term at UCLA.

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