Solution 5 - Solutions for Tutorial 5 10.3 Initial...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Solutions for Tutorial 5 10.3 Initial investment = $3,300,000 Length of project = n = 5 years Required rate of return = k = 18% 0 $134,990.6 5 4 3 2 1 0 ) 18 . 1 ( 455 , 504 , 1 $ ) 18 . 1 ( 399 , 250 , 1 $ ) 18 . 1 ( 000 , 145 , 1 $ ) 18 . 1 ( 222 , 966 $ ) 18 . 1 ( 123 , 875 $ 000 , 300 , 3 $ ) 1 ( n t t t k NCF NPV Since the NPV is positive, the company should accept the project. 10.13 a. Both are independent projects. b. Required rate of return = 16.4% Product Line Expansion: Cost of product line expansion = $2,575,000 $27,222.17 0 5 4 3 2 1 0 ) 164 . 1 ( 000 , 875 $ ) 164 . 1 ( 000 , 875 $ ) 164 . 1 ( 000 , 875 $ ) 164 . 1 ( 000 , 875 $ ) 164 . 1 ( 000 , 600 $ 00 , 575 , 2 $ ) 1 ( n t t t k FCF NPV Production Capacity Expansion: Cost of production capacity expansion = $8,137,250 0 $732,228.0 962 , 520 , 1 $ 400 , 770 , 1 $ 116 , 578 , 5 $ 250 , 137 , 8 $ ) 164 . 1 ( 000 , 250 , 3 $ ) 164 . 1 ( 000 , 250 , 3 $ 164 . 0 ) 164 . 1 ( 1 1 000 , 500 , 2 $ 250 , 137 , 8 $ ) 1 ( 5 4 3 0 n t t t k FCF NPV
Background image of page 1

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

View Full DocumentRight Arrow Icon
c. Since they are independent, and both have NPV > 0, both projects
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 05/19/2011 for the course ECON 203 taught by Professor Martin during the Three '10 term at University of Melbourne.

Page1 / 5

Solution 5 - Solutions for Tutorial 5 10.3 Initial...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online