BusM 401
Problem Set #10
Discounted Cash Flow Analysis
Instructions:
Complete all questions.
This problem set is worth 10 points.
Problems sets are graded
on effort and completeness; you must show your work in order to get full credit.
Short answers
(“checkpoints”) are available for some questions on Blackboard so that you can check your answers.
Full solutions are available on Blackboard after the problem set is due.
(Some full answers are found
in the back of Higgins; it’s best not to look at these until you have tried your best to answer the
question.)
Prepare to be enlightened.
1.
a.
You are performing a discounted cash flow analysis on a project that requires a special
piece of machinery that is owned by your firm but that is no longer being used in any other
capacity.
If your firm sold the machinery today, it would probably sell for about $10,000.
The machinery was purchased for $50,000 (in present value terms) two years earlier.
One
year ago, your firm spent an additional $20,000 (in present value terms) to modify the
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 Fall '10
 ToddMitton
 Depreciation, Revenue, Net Present Value, Expense

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