FIN 300 QUIZ 7 CAPBUD SPR 2021.pdf - QUIZ 7 CAPITAL...

This preview shows page 1 - 2 out of 2 pages.

QUIZ 7 CAPITAL BUDGETING SPR 2021 SOLUTIONS ONE VERSION **This quiz is the property of David Hoffman and may not be reproduced or posted online.** 1. Builtrite has estimated their cost of capital is 15% (12%) and they are considering the purchase of a machine with the following capital budget: Initial Investment $65,000 or 68,000 RATFCF Year 1 $28,000 32,000 RATFCF Year 2 $34,000 24,000 RATFCF Year 3 $32,000 36,000 What is the machine’s NPV? Multiply each cashflow by D-3 and subtract the initial investment gives you the NPV of $6120 . (Other version NPV $5336) 2. Builtrite is considering the purchase of a machine with the following cash flow diagram: year 0 spend $50,000. year 1 $30,000 15,000 year 2 $15,000 20,000 year 3 $20,000 20,000 year 4 $20,000 15,000 What is the payback period? 30 + 15 = 45 30 + 15 + 20 = 65 so the payback is between 2 and 3 years. 45 to 50 is 5 and 45 to 65 is 20 so 2 years + 5/20 or 2.25 years is the payback period. (15 + 20 = 35 15 + 20 + 20 = 55 so the payback period is between 2 and 3 years. 35 to 50 is 15 and 35 to 55 is 20 so 2 years + 15/20 or 2.75 years.) 3.

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture