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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## This note was uploaded on 04/03/2012 for the course ENGIN 106 taught by Professor Fizali during the Spring '12 term at Laney College.

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

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