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Session6_HWSolution

Session6_HWSolution - expects this equipment will lead to...

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Session 6 Homework Solutions Solution: Year 0 Year 1 Year 2 Year 3 Year 5 Year 6 (\$4,133,250) \$814,322 \$863,275 \$937,250 \$1,212,960 \$1,225,000 i= 15% Find NPV= (\$441,933.01) Solution: Time 0 1 2 CF (\$3,768,966) \$979,225 \$1,158,886 Cumulative CF (\$3,768,966) (\$2,789,741) (\$1,630,855) PB= Years before cost recovery + (Remaining cost to recover/ Cash flow during the year) 2.87 Year Project 1 Project 2 0 (\$8,425,375) (\$11,368,000) 1 \$3,225,997 \$2,112,589 2 \$1,775,882 \$3,787,552 3 \$1,375,112 \$3,125,650 4 \$1,176,558 \$4,115,899 5 \$1,212,645 \$4,556,424 6 \$1,582,156 7 \$1,365,882 Find NPV= (\$668,283.21) \$375,375.16 Since Project 2 is positive we accept this project. Year Project 1 Project 2 0 (\$1,250,000) (\$1,250,000) 1 \$250,000 \$350,000 2 \$350,000 \$350,000 3 \$450,000 \$350,000 4 \$500,000 \$350,000 5 \$750,000 \$350,000 Solution: Find NPV= \$186,683.07 (\$76,745.72) Find IRR= 20.1% 12.4% Given a required rate of return of 15 percent, Project 1 will be accepted as the IRR of 20.1 percent exceeds the required rate of return. Project 2 will be rejected. 10.2 Net present value: Kingston, Inc., is looking to add a new machine at a cost of \$4,133,250. The company
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Unformatted text preview: expects this equipment will lead to cash flows of \$814,322, \$863,275, \$937,250, \$1,017,112, \$1,212,960, and \$1,225,000 over the next six years. If the appropriate discount rate is 15 percent, what is the NPV of this investment? 10.5 Payback: Quebec, Inc., is purchasing machinery at a cost of \$3,768,966. The company expects, as a result, cash flows of \$979,225, \$1,158,886, and \$1,881,497 over the next three years. What is the payback period? 10.24 Draconian Measures, Inc., is evaluating two independent projects. The company uses a 13.8 percent discount rate for such projects. Cost and cash flows are shown in the table. What are the NPVs of the two projects? 10.28 Jekyll & Hyde Corp. is evaluating two mutually exclusive projects. Their cost of capital is 15 percent. Costs and cash flows are given in the following table. Which project should be accepted?...
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