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002 - 3 4 7 9 c H A P'r E n 8 Net Present Value and Other...

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Unformatted text preview: 3. 4- 7.. 9. c H A P 'r E n 8 Net Present Value and Other Invesunent Criteria ' Caicuiating- Payback. . Kleimner Manufacturing N.V.,.imposes a payback cutoff of three years for its. international investment projects. If the company has ' the following two projects available, should it accept either of them? 2$ 45,000 —$90,000 0 1 17,000 19,000 2 23,000 24,000 ' 3 19,000 35,000 4 100,000 5,000 calculating MR. You’re trying to deterrinne whether or not to expand your business by building a new manufacturing plant. The plant has .an installation cost of $17 million, which will be depreciated straight—line to zero over its fouréyear life. If the plant has projected net income of $1,735,000, $2,105,000, $1,954,000, and $1,342,000 over these four years, what is the project’s average aCComiting return (AAR)? Calculating £83. A firm evaluates all of its projects by applying the IRR rule. If the required return is 13 percent, should the. firm accept the following project? —$4,550 0 1 1 ,750 2 2,550 3 540 Calcmafing NPV. For the cash flows in the previous problem”, suppose the firm uses the NPV decision rule. At a required return of 10 percent, Should the firm _ accept this project? What if the required return was 21 percent? calculating NPV and IR“. A project that provides annual cash flows of _ $2,150 for nine years costs $8,900 today. Is this a goodprdject if the required return is 8 percent? What if it’s 22 percent? At What discount. rate would you be- indifferent between accepting the project and rejecting it?" . Calculating. ERR. What is the IRR of the following set of. cash; flows? —$32,000 0 1 13,200 2 18,500 3 10,600 Gaicuiating NPV. For the cash flows in the previous problem What is the-NPV at a discount. rate of zero percent? What if the discount rate is .10 percent? If it is 20 percent? If it is 30 percent?- 295 ...
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