10 4 electric powered npv e 22000 6290 1i 1i1i n

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10-4 Electric-powered: NPV E = -$22,000 + $6,290 [(1/i)-(1/(i*(1+i) n )] = -$22,000 + $6,290 [(1/0.12)-(1/(0.12*(1+0.12) 6 )] = -$22,000 + $6,290(4.1114) = -$22,000 + $25,861 = $3,861. Financial calculator: Input the appropriate cash flows into the cash flow register, input I = 12, and then solve for NPV = $3,861. Financial calculator: Input the appropriate cash flows into the cash flow register and then solve for IRR = 18%. Gas-powered: NPV G = -$17,500 + $5,000 [(1/i)-(1/(i*(1+i) n )] = -$17,500 + $5,000 [(1/0.12)-(1/(0.12*(1+0.12) 6 )] = -$17,500 + $5,000(4.1114) = -$17,500 + $20,557 = $3,057. Financial calculator: Input the appropriate cash flows into the cash flow register, input I = 12, and then solve for NPV = $3,057. Financial calculator: Input the appropriate cash flows into the cash flow register and then solve for IRR = 17.97% ≈ 18%. The firm should purchase the electric-powered forklift because it has a higher NPV than the gas-powered forklift. The company gets a high rate of return (18% > r = 12%) on a larger investment. Answers and Solutions: 10 - 8 14%
10-5 Financial calculator solution, NPV: Project S Inputs 5 12 3000 0 Output = -10,814.33 NPV S = $10,814.33 - $10,000 = $814.33. Project L Inputs 5 12 7400 0 Output = -26,675.34 NPV L = $26,675.34 - $25,000 = $1,675.34. Financial calculator solution, IRR: Input CF 0 = -10000, CF 1 = 3000, N j = 5, IRR S = ? IRR S = 15.24%. Input CF 0 = -25000, CF 1 = 7400, N j = 5, IRR L = ? IRR L = 14.67%. Financial calculator solution, MIRR: Project S Inputs 5 12 0 3000 Output = -19,058.54 PV costs S = $10,000. FV inflows S = $19,058.54. Inputs 5 -10000 0 19058.54 Output = 13.77 MIRR S = 13.77%. Answers and Solutions: 10 - 9 N I FV PMT PV N I FV PMT PV N I FV PMT PV N I FV PMT PV
Project L Inputs 5 12 0 7400 Output = -47,011.07 PV costs L = $25,000. FV inflows L = $47,011.07. Inputs 5 -25000 0 47011.07 Output = 13.46 MIRR L = 13.46%. PI S = 000 , 10 $ 33 . 814 , 10 $ = 1.081. PI L = 000 , 25 $ 34 . 675 , 26 $ = 1.067. Thus, NPV L > NPV S , IRR S > IRR L , MIRR S > MIRR L , and PI S > PI L . The scale difference between Projects S and L result in the IRR, MIRR, and PI favoring S over L. However, NPV favors Project L, and hence L should be chosen. Answers and Solutions: 10 - 10 N I FV PMT PV N I FV PMT PV
10-6 Project X: 0 1 2 3 4 | | | | | -1,000 100 300 400 700.00 448.00 376.32 140.49 1,664.81 1,000 13.59% = MIRR X` $1,000 = $1,664.81/(1 + MIRR X ) 4 . Project Y: 0 1 2 3 4 | | | | | - 1,000 1,000 100 50 50.00 56.00 125.44 1,404.93 1,636.37 1,000 13.10% = MIRR Y $1,000 = $1,636.37/(1 + MIRR Y ) 4 . Thus, since MIRR X > MIRR Y , Project X should be chosen. Alternative step: You could calculate NPVs, see that Project X has the higher NPV, and just calculate MIRR X . NPV X = $58.02 and NPV Y = $39.94. 10-7 a. Purchase price $ 900,000 Installation 165,000 Initial outlay $1,065,000 CF 0 = -1065000; CF 1-5 = 350000; I = 14; NPV = ? NPV = $136,578; IRR = 19.22%. b. Ignoring environmental concerns, the project should be undertaken because its NPV is positive and its IRR is greater than the firm's cost of capital. c. Environmental effects could be added by estimating penalties or any other cash outflows that might be imposed on the firm to help return the land to its previous state (if possible). These outflows could be so large as to cause the project to have a negative NPV--in which case the project should not be undertaken. Answers and Solutions: 10 - 11 12% 12%
10-8 a. b. IRR A = 18.1%; IRR B = 24.0%. c. At r = 10%, Project A has the greater NPV, specifically $283.34 as compared to Project B's NPV of $178.60. Thus, Project A would be selected. At r = 17%, Project B has an NPV of $75.95 which is higher than Project A's NPV of $31.05. Thus, choose Project B if r = 17%.

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