Chapter 11 - Chapter 11 Solutions to End-of-Chapter...

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Chapter 11 Solutions to End-of-Chapter Problems 11-1 Financial calculator solution: Input CF 0 = -52125, CF 1-8 = 12000, I/YR = 12, and then solve for NPV = $7,486.68. 11-2 Financial calculator solution: Input CF 0 = -52125, CF 1-8 = 12000, and then solve for IRR = 16%. 11-3 MIRR: PV costs = $52,125. FV inflows: PV FV 0 1 2 3 4 5 6 7 8 | | | | | | | | | 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 13,440 15,053 16,859 18,882 21,148 23,686 26,528 52,125 MIRR = 13.89% 147,596 Financial calculator solution: Obtain the FVA by inputting N = 8, I/YR = 12, PV = 0, PMT = 12000, and then solve for FV = $147,596. The MIRR can be obtained by inputting N = 8, PV = -52125, PMT = 0, FV = 147596, and then solving for I/YR = 13.89%. 11-4 Since the cash flows are a constant $12,000, calculate the payback period as: $52,125/$12,000 = 4.3438, so the payback is about 4 years. 11-5 Project K’s discounted payback period is calculated as follows: Annual Discounted @12% Period Cash Flows Cash Flows Cumulative 0 ($52,125) ($52,125.00) ($52,125.00) 1 12,000 10,714.29 (41,410.71) 2 12,000 9,566.33 (31,844.38) 3 12,000 8,541.36 (23,303.02) 4 12,000 7,626.22 (15,676.80) 5 12,000 6,809.12 (8,867.68) 6 12,000 6,079.57 (2,788.11) 7 12,000 5,428.19 2,640.08 8 12,000 4,846.60 7,486.68 The discounted payback period is 6 + 19 . 8 $5,42 11 $2,788. years, or 6.51 years. 12% × 1.12 × (1.12) 2 × (1.12) 3 × (1.12) 4 × (1.12) 5 × (1.12) 6 × (1.12) 7
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a. Project A: Using a financial calculator, enter the following: CF 0 = -25, CF 1 = 5, CF 2 = 10, CF 3 = 17, I/YR = 5; NPV = $3.52. Change I/YR = 5 to I/YR = 10; NPV = $0.58. Change I/YR = 10 to I/YR = 15; NPV = -$1.91. Project B: Using a financial calculator, enter the following: CF 0 = -20, CF 1 = 10, CF 2 = 9, CF 3 = 6, I/YR = 5; NPV = $2.87. Change I/YR = 5 to I/YR = 10; NPV = $1.04. Change I/YR = 10 to I/YR = 15; NPV = -$0.55. b. Using the data for Project A, enter the cash flows into a financial calculator and solve for IRR A = 11.10%. The IRR is independent of the WACC, so it doesn’t change when the WACC changes. Using the data for Project B, enter the cash flows into a financial calculator and solve for IRR B = 13.18%. Again, the IRR is independent of the WACC, so it doesn’t change when the WACC changes. c. At a WACC = 5%, NPV A > NPV B so choose Project A. At a WACC = 10%, NPV B > NPV A so choose Project B. At a WACC = 15%, both NPVs are less than zero, so neither project would be chosen. 11-7 a. Project A: CF 0 = -6000; CF 1-5 = 2000; I/YR = 14. Solve for NPV A = $866.16. IRR A = 19.86%. MIRR calculation: 0 1 2 3 4 5 | | | | | | -6,000 2,000 2,000 2,000 2,000 2,000 2,280.00 2,599.20 2,963.09 3,377 .92 13,220 .21 Using a financial calculator, enter N = 5; PV = -6000; PMT = 0; FV = 13220.21; and solve for MIRR A = I/YR = 17.12%. × 1.14
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This homework help was uploaded on 04/07/2008 for the course FNBSLW 344 taught by Professor Bocksteigle during the Spring '08 term at Wisc Whitewater.

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Chapter 11 - Chapter 11 Solutions to End-of-Chapter...

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