answers-odd-problems-ch10

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

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

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

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