ECN 5600_Chapter05 - A 1 2 3 4 5 6 7 List price of car...

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BUYING A CAR List price of car 11,000.00 Downpayment 5,000.00 Cash cost of car 10,000.00 Bank rate of interest 9% Year 0 -10,000.00 -5,000.00 5,000.00 #NAME? 1 -2,000.00 -2,000.00 #NAME? 2 -2,000.00 -2,000.00 3 -2,000.00 -2,000.00 Internal rate of return 9.70% #NAME? NPV of cash saved -62.59 #NAME? Borrowing the money from the bank Year 0 -10,000.00 5,000.00 -5,000.00 1 -1,975.27 -1,975.27 #NAME? 2 -1,975.27 -1,975.27 3 -1,975.27 -1,975.27 Payment in cash Payment with credit Cash spent or saved with credit plan Payment in cash Bank loan cash flows Total cash flow to car owner A B C D E 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
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IRR VERSUS NPV--THE DEALER'S PROBLEM List price of car 11,000.00 Downpayment 5,000.00 Cash cost of car 10,000.00 Bank rate of interest 9% Year 0 10,000.00 5,000.00 -5,000.00 #NAME? 1 2,000.00 2,000.00 #NAME? 2 2,000.00 2,000.00 3 2,000.00 2,000.00 Internal rate of return 9.70% #NAME? NPV of cash saved 62.59 #NAME? Payment in cash Payment with credit Differential dealer cash flow A B C D E 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
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CONVENTIONAL AND NONCONVENTIONAL CASH FLOW PATTERNS Year 0 -100 -100 100 25 -25 -250 1 200 -50 55 35 80 35 2 500 60 35 -200 -100 145 3 50 80 50 33 200 330 4 60 99 -100 55 55 55 5 35 100 -35 155 -250 -250 Cash flow Project A Cash flow Project B Cash flow Project C Cash flow Project D Cash flow Project E Cash flow Project F á Conventional cash flow pattern á Conventional cash flow pattern á Conventional cash flow pattern á Nonconventional cash flow pattern á Nonconventional cash flow pattern á Nonconventional cash flow pattern Initial negative cash flow followed by positive cash flows Two initial negative cash flows followed by positive cash flows Initial positive cash flows followed by negative cash flows Two positive cash flows, then negative, then three positive cash flows Initial negative cash flow, then positive, then negative, positive, negative cash flows Negative cash flows at beginning and end, other cash flows positive A B C D E F G 1 2 3 4 5 6 7 8 9 10
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SANITARY LANDFILL, INC. Year Cash flow NPV 0 -800,000 0% -50,000 #NAME? 1 450,000 2% -10,900 #NAME? 2 450,000 4% 17,848 #NAME? 3 450,000 6% 38,123 4 450,000 8% 51,465 5 450,000 10% 59,143 6 -1,500,000 12% 62,203 14% 61,507 First IRR 2.68% #NAME? 16% 57,769 Second IRR 27.74% #NAME? 18% 51,580 20% 43,428 22% 33,721 24% 22,793 26% 10,923 28% -1,658 30% -14,758 32% -28,219 34% -41,912 36% -55,727 SINKING FUNDS AND PROJECT ANALYSIS Sinking fund interest rate 5.00% Project discount rate 13% $258,535.43 #NAME? Year 0 -800,000 -800,000 1 450,000 (258,535) 191,465 258,535 #NAME? 2 450,000 (258,535) 191,465 529,998 #NAME? 3 450,000 (258,535) 191,465 815,033 4 450,000 (258,535) 191,465 1,114,320 5 450,000 (258,535) 191,465 1,428,571 6 -1,500,000 1,500,000 0 1,500,000 IRR on investor cashflow after sinking fund 6.30% #NAME? NPV on investor cashflow after sinking fund
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ECN 5600_Chapter05 - A 1 2 3 4 5 6 7 List price of car...

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