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PS 5 - IRR, ERR, BC and Payback Criterion

# PS 5 - IRR, ERR, BC and Payback Criterion - take a...

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IE 150 Problem Set 5 NPV Analysis Instructions:  Write/Type/Print your answers on yellow pad or bond paper (NO A4’s). Use a different sheet per  problem.  Use phrases  to describe what you are doing. Do not present it as just a series of equations and  numbers.  Label each step. Ex: “Step 1: Set-up the Total Revenue Equation”, “Step 4: Solve for the NPV”.  Box the final answers.  Use clear formatting: Indent at each step. Show your answers in just 1 column. (The problem set  will be read from top to bottom, and not top bottom diagonal right bottom.) Problem 1:  Solve for the IRR.  Capital Investment 1,500,000 Y+1 1,000,000 Y+2 800,000 Y+3 500,000 a) Solve using trial and error with interpolation b) Solve using the calculator (shift-solve function). Show the “set-up” of the equation. (this may
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Unformatted text preview: take a while) (Show the set-up of the equation at least). c) Compute the simple and discounted payback periods for this alternative. Problem 2: A venture capitalist was given a business prospectus (business proposal) which had the following details: Start-up Cost 1,000,000 Expected Useful Life of the Business 4 Years Salvage Value (resale at end of Useful Life 500,000 Estimated Annual Revenues per Year. 600,000 Total Operating Cost per Year 200,000 The VC has an option to just invest in his real estate business which will earn him 15% per year. He also adds an additional 10% for the risk of this new business venture, totalling his MARR to 25%. Evaluate the deal using the ERR Method....
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