# answers-odd-problems-ch10 - Chapter 10 The Basics of...

This preview shows pages 1–4. Sign up to view the full content.

Chapter 10 The Basics of Capital Budgeting Evaluating Cash Flows SOLUTIONS TO END-OF-CHAPTER PROBLEMS 10-1 a. \$52,125/\$12,000 = 4.3438, so the payback is about 4 years. b. Project K's discounted payback period is calculated as follows: Annual Discounted @12% Period Cash Flows Cash Flows Cumulative 0 (\$52,125) (\$52,125.00) (\$52,125.00) 1 12,000 10,714.80 (41,410.20) 2 12,000 9,566.40 (31,843.80) 3 12,000 8,541.60 (23,302.20) 4 12,000 7,626.00 (15,676.20) 5 12,000 6,808.80 (8,867.40) 6 12,000 6,079.20 (2,788.20) 7 12,000 5,427.60 2,639.40 8 12,000 4,846.80 7,486.20 The discounted payback period is 6 + 60 . 427 , 5 \$ 20 . 788 , 2 \$ years, or 6.51 years. Alternatively, since the annual cash flows are the same, one can divide \$12,000 by 1.12 (the discount rate = 12%) to arrive at CF 1 and then continue to divide by 1.12 seven more times to obtain the discounted cash flows (Column 3 values). The remainder of the analysis would be the same. c. NPV = -\$52,125 + \$12,000[(1/i)-(1/(i*(1+i) n )] = -\$52,125 + \$12,000[(1/0.12)-(1/(0.12*(1+0.12) 8 )] = -\$52,125 + \$12,000(4.9676) = \$7,486.20. Financial calculator: Input the appropriate cash flows into the cash flow register, input I = 12, and then solve for NPV = \$7,486.68. d. Financial calculator: Input the appropriate cash flows into the cash flow register and then solve for IRR = 16%. Mini Case: 10 - 1

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
e. MIRR: PV Costs = \$52,125. FV Inflows: PV FV 0 1 2 3 4 5 6 7 8 | | | | | | | | | 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 13,440 15,053 16,859 18,882 21,148 23,686 26,528 52,125 MIRR = 13.89% 147,596 Financial calculator: Obtain the FVA by inputting N = 8, I = 12, PV = 0, PMT = 12000, and then solve for FV = \$147,596. The MIRR can be obtained by inputting N = 8, PV = -52125, PMT = 0, FV = 147596, and then solving for I = 13.89%. 10-3 Truck: NPV = -\$17,100 + \$5,100(PVIFA 14%,5 ) = -\$17,100 + \$5,100(3.4331) = -\$17,100 + \$17,509 = \$409. (Accept) Financial calculator: Input the appropriate cash flows into the cash flow register, input I = 14, and then solve for NPV = \$409. Financial calculator: Input the appropriate cash flows into the cash flow register and then solve for IRR = 14.99% ≈ 15%. MIRR: PV Costs = \$17,100. FV Inflows: PV FV 0 1 2 3 4 5 | | | | | | 5,100 5,100 5,100 5,100 5,100 5,814 6,628 7,556 Mini Case: 10 - 2 12% 14%
8,614 17,100 MIRR = 14.54% (Accept) 33,712 Financial calculator: Obtain the FVA by inputting N = 5, I = 14, PV = 0, PMT = 5100, and then solve for FV = \$33,712. The MIRR can be obtained by inputting N = 5, PV = -17100, PMT = 0, FV = 33712, and then solving for I = 14.54%. Pulley: NPV = -\$22,430 + \$7,500(3.4331) = -\$22,430 + \$25,748 = \$3,318. (Accept) Financial calculator: Input the appropriate cash flows into the cash flow register, input I = 14, and then solve for NPV = \$3,318. Financial calculator:

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 04/12/2011 for the course ECON 101 taught by Professor Buddin during the Spring '08 term at UCLA.

### Page1 / 12

answers-odd-problems-ch10 - Chapter 10 The Basics of...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online