Solution 5

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

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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

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c. Since they are independent, and both have NPV > 0, both projects
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## 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.

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

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