FIN 301 Fall 2010 HW3

# FIN 301 Fall 2010 HW3 - FIN 301 Fall 2010 Homework...

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FIN 301 Fall 2010 Homework Assignments Homework 3 (Due by 4:00 PM on November 15 Monday ) Problem 1 (Alternative Investment Criteria) You have the following projects available: Project Cash Flows Time Period A B C D 0 -\$50,000.00 -\$50,000.00 -\$7,000.00 -\$10,000.00 1 \$35,000.00 \$2,000.00 \$40,000.00 \$6,000.00 2 \$15,000.00 \$4,000.00 \$15,000.00 \$2,000.00 3 \$9,000.00 \$16,000.00 -\$55,000.00 4 \$2,000.00 \$28,000.00 5 \$1,000.00 \$30,000.00 Discount Rate 11.00% 11.00% 15.00% 10.00% Payback Period 2 4 No payback yet Discounted Payback 3 5 The project is not end yet PI 1.043950075 1.06 NPV 2197.503738 \$2,995.36 \$2,961.37 IRR 1 14.031% 12.675% 485.10% -16.14% IRR 2 Note: For simplicity, we measure payback period and discounted payback period in full years (unlike the textbook). Calculate the numbers that belong in the blank cells. Hints: A second IRR may not exist. For project D, the payback and discounted payback period may be easier to express in words rather than numbers. For problem 1, at T=0 the initial cash flow is -\$70,000.00 and at T=3 there is another cash flow of -\$55,000.00. To calculate the   Payback period do I use just first cash out flow or do i add both of them? You do not need to calculate the cells that are greyed out. Sorry about the confusion. Problem 2 (Capital Budgeting) John’s Pancake House needs to buy a new grease trap owing to changes in environmental laws. He is currently considering two different traps (both belong to CCA class 22 with a depreciation rate of 50%). Trap A costs \$4000. It has a capacity of 500 gallons of grease. The operating costs of this trap are \$700 per year. The trap is expected to last 4 years.

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## This note was uploaded on 11/01/2011 for the course BUSINESS FIN301 taught by Professor Andrew during the Fall '10 term at University of Alberta.

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FIN 301 Fall 2010 HW3 - FIN 301 Fall 2010 Homework...

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