This preview has blurred sections. Sign up to view the full version!
View Full Document
ActSc 371 7.7 and 7.8 Practice Problems 1. What is the profitability index for the following cash flows, if the relevant discount rate is 15%? Year 0 $-10,000 Year 1 $6,500 Year 2 $4,000 Year 3 $2,500 A) 1 B) 1.03 C) 1.3 D) 1.05 E) 1.11 Solution: PV of cash flows after the initial investment is: 10,320.54. The PI is this value divided by the absolute value of the original investment This is 10320.54/10000=1.03 2. The Ziggy Trim and Cut Company can purchase equipment on sale for $4,300. The asset has a three-year life, will produce a cashflow of $1,200 in the first and second year, and $3,000 in the third year. The interest rate is 12%. Calculate the project's discounted payback and Profitability Index assuming end of year cash flows. Should the project be taken? Solution: CF0=-4300 CF1=1200 CF2=1200 CF3=3000 Step 1: Calculate the NPV using the calculator = -136.60 Because NPV is less than zero, discounted payback cannot be calculated. ... View Full Document
chapter 8 part 3 practice questions
Chapter 23 Practice Questions relating options to firm value
Chapter 24 - practice problems
2011.09.25 - CorpFi - Assignment 1 Solutions
ActSc371_Lecture 18_Chapter 7 (Ross) - cont'd part 3
ActSc371_Lecture 29_Chapter 25 (Ross)
Capital Budgeting
ch07
Chapter 07 Net Present Valu
Ch_09_Inclass_Exercises_Solutions
Mos 2310 October 14
notes_solutions_chapter7_2013
Copyright © 2015. Course Hero, Inc.
Course Hero is not sponsored or endorsed by any college or university.