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# Ch11.Answers - Chapter 11 Answers 1 PV FV N I A-12,000...

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Chapter 11 Answers 1. A B C D PV -12,000 -12,000 -12,000 -12,000 FV 14,321 23,045 135,761 13,210 N 6 12 20 2 I 2.99 5.59 12.90 4.92 2. A B C D PV -20,000 -20,000 -20,000 -20,000 Pmt 4,237 1,957 8,901 2,346 N 6 10 20 13 I 7.32 -.39 44.48 6.65 3. Note: Use your cash flow button on your calculator to solve the problems. A B C D Initial outlay -8,000 -8,000 -8,000 -8,000 CF 4,000 2,000 4,000 (@ yr 2) 1,000 (yrs 1-4) CF 3,000 3,000 3,000 (@ yr 3) 2,000 (@ yr 6) CF 2,000 3,000 2,000 (@ yr 4) 3,000 (@ yr 8) IRR 6.93 0.00 4.35 2.37 4. To see the intuition, you can take a TVM button approach like this: a. Step 1: Discount the cash flows to time zero. Pmt= 525,000 N= 8 I= 12 PV= 2,608,010.88 a. Step 2: Solve for NPV by subtracting out the initial outlay. 2,608,010.88 – 2,450,000 = 158,010.88 A more direct method is to use the NPV button on your calculator. You’d set it up as: IO (sometimes called CF 0 ) = -2,450,000. CF1 = 525,000 CF2 = 525,000, etc through CF 8 = 525,000. Then you would enter I=12 and compute NPV. On some calculators, you can enter the IO, then CF j = 525,000, then N j (the number of equal flows) = 8, then I=12, then compute NPV. Work with your specific calculator until you are comfortable with it. Examples of the various calculators are used through the chapter and the TI-83 appendix.

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