ENG106W12_HW7-solution

ENG106W12_HW7-solution - ENG 106 Homework #7 Solutions Due:...

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1 ENG 106 Homework #7 Solutions Winter 2012 Due: Wed, Feb 29, 3 pm, HW box 7.8 An investor bought 100 shares of stock at a cost of $10 per share. He held the stock for 15 years and then sold it for a total of $4,000. For the first three years, he received no dividends. For each of the next seven years, he received total dividends of $50 per year. For the remaining period, he received total dividends of $100 a year. What rate of return did he make on the investment? PW(i) = -$1000 + ($50(F/A,i%,12)+$50(F/A,i%,5)+$4,000)]*(P/F,i%,15) Set PW = 0, then solve for ι , ι =12.08%, using EXCEL IRR function. 7.10 Consider the following projects Net Cash Flow n A B C D 0 -$1500 -$1200 -$2000 -$2700 1 $500 $800 $5600 $360 2 $100 $600 $4900 $4675 3 $100 $500 -$3000 $2288 4 $1000 $700 -$7000 5 -$1400 6 $2100 7 $900 (a) Classify each project as either simple or nonsimple A, B, and D are simple projects (only one change in sign of cash flows), C is nonsimple. (b) Identify all positive i*s for each project A: 1500(F/P, i*,4) = 500(F/P, i*,3)+100(F/P, i*,2)+100(F/P, i*,1)+1000 Project A: ι *=4.4% B: 1200(F/P, i*,4) = 800(F/P, i*,3)+600(F/P, i*,2)+500(F/P, i*,1)+700 Project B: ι *=42.% For Project C, one approach is to use EXCEL IRR with different guesses for i: =IRR(flow 0 :flow n , guess for i*). Project C:
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ENG106W12_HW7-solution - ENG 106 Homework #7 Solutions Due:...

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