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Unformatted text preview: Final Exam Review Notes 1 Expectations • 50 Multiple Choice Questions: 2022 questions from Chapters 8, 9, 10, 12, and 13. 2022 questions from Chapters 16, 17, 20, and 21. 610 questions from Chapters 3 and 4. • Bring a green scantron, pencil, and calculator. • One cheat sheet allowed  two sided. • Entire Class Period to take the exam, 2 hours and 45 minutes. 1 2 Chapter 8 Example: A project life is 3 years. It requires a capital investment of 1,000. The expected cash flows are 500 for the next three years. The discount rate is 12%. Calculate NPV, IRR, payback, and PI. NPV = 1000 + 500 1 . 12 + 500 1 . 12 2 + 500 1 . 12 3 = 200 (1) IRR = 1000 + 500 1 + r + 500 (1 + r ) 2 + 500 (1 + r ) 3 = 200 (2) Payback = Year 1 =500, Year 2 =500 so 2 years. PI = PV I = 1200 1000 = 1 . 2 (3) 3 Chapter 9 The expected revenues are 10,000, expected expenses are 6,000. Project life is 3 years. Equipment costs 10,000 and depreciates straight line to 1,000 over the project life. Land is 1,000 and there is no net working capital investment. Tax rate is 35%. Equipment is sold for 2,000 at the end of year 3. Find initial outlay, operating cash flow, and non operating terminal year cash flow. Outlay = FCInv + NWCInv = 10 , 000 + 1 , 000 = 11 , 000 (4) CF = ( S C D )(1 T ) + D = (10 , 000 6 , 000 3 , 000) * (1 . 35) + 3 , 000 = 3650 (5) TNOCF = SALT + NWInv T ( SalTBT ) = 2 , 000 . 35 * (2 , 000 1 , 000) = 1 , 650 (6) 4 Chapter 10 Example as in Chapter 8: A project life is 3 years. It requires a capital investment of 1,000. The expected cash flows are 500 for the next three years. The discount rate is 12%. The 2 pessimistic case is a cash flow of 400 per year. What is the NPV now and how much does it differ from the base case?differ from the base case?...
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This note was uploaded on 09/06/2011 for the course FIN 351 taught by Professor Li during the Spring '09 term at S.F. State.
 Spring '09
 LI

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