Answers and solutions 11 24 11 16 a using a financial

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Answers and Solutions:11 - 24
11-16a.Using a financial calculator, input the following:CF0= -190000,CF1= 87000, Nj= 3, and I = 14 to solve for NPV190-3= $11,981.99 ≈$11,982 (for 3 years).Adjusted NPV190-3= $11,982 + $11,982/(1.14)3= $20,070.Using a financial calculator, input the following:CF0= -360000,CF1= 98300, Nj= 6, and I = 14 to solve for NPV360-6= $22,256.02 ≈$22,256 (for 6 years).Both new machines have positive NPVs, hence the old machineshould be replaced.Further, since its adjusted NPV is greater,choose Model 360-6.11-17a.NPV of termination after Year t:NPV0= -$22,500 + $22,500 = 0.Using a financial calculator, input the following:CF0= -22500, CF1= 23750, and I = 10 to solve for NPV1= -$909.09 ≈ -$909.Using a financial calculator, input the following:CF0= -22500, CF1= 6250, CF2= 20250, and I = 10 to solve for NPV2= -$82.64 ≈ -$83.Using a financial calculator, input the following:CF0= -22500, CF1= 6250, Nj= 2, CF3= 17250, and I = 10 to solve for NPV3= $1,307.29≈ $1,307.Using a financial calculator, input the following:CF0= -22500, CF1= 6250, Nj= 3, CF4= 11250, and I = 10 to solve forNPV4= $726.73 ≈$727.Using a financial calculator, input the following:CF0= -22500, CF1= 6250, Nj= 5, and I = 10 to solve for NPV5= $1,192.42 ≈ $1,192.The firm should operate the truck for 3 years, NPV3= $1,307.b. No.Salvage possibilities could only raise NPV and IRR.The valueof the firm is maximized by terminating the project after Year 3.Answers and Solutions:11 - 25
SOLUTION TO SPREADSHEET PROBLEM11-18 The detailed solution for the problem is available both on theinstructor’s resource CD-ROM (in the fileSolution for Ch 11 P18 Builda Model.xls) and on the instructor’s side of the web site,brigham.swcollege.com.Answers and Solutions:11 - 26
MINI CASEYOU HAVE JUST GRADUATED FROM THE MBA PROGRAM OF A LARGE UNIVERSITY, AND ONEOF YOUR FAVORITE COURSES WAS “TODAY’S ENTREPRENEURS.” IN FACT, YOU ENJOYEDIT SO MUCH YOU HAVE DECIDED YOU WANT TO “BE YOUR OWN BOSS.” WHILE YOU WEREIN THE MASTER’S PROGRAM, YOUR GRANDFATHER DIED AND LEFT YOU $300,000 TO DOWITH AS YOU PLEASE. YOU ARE NOT AN INVENTOR AND YOU DO NOT HAVE A TRADESKILL THAT YOU CAN MARKET; HOWEVER, YOU HAVE DECIDED THAT YOU WOULD LIKE TOPURCHASE AT LEAST ONE ESTABLISHED FRANCHISE IN THE FAST FOODS AREA, MAYBETWO (IF PROFITABLE).THE PROBLEM IS THAT YOU HAVE NEVER BEEN ONE TO STAYWITH ANY PROJECT FOR TOO LONG, SO YOU FIGURE THAT YOUR TIME FRAME IS THREEYEARS.AFTER THREE YEARS YOU WILL SELL OFF YOUR INVESTMENT AND GO ON TOSOMETHING ELSE.YOU HAVE NARROWED YOUR SELECTION DOWN TO TWO CHOICES; (1) FRANCHISE L:LISA’S SOUPS, SALADS, & STUFF AND (2) FRANCHISE S: SAM’S WONDERFUL FRIEDCHICKEN. THE NET CASH FLOWS SHOWN BELOW INCLUDE THE PRICE YOU WOULD RECEIVEFOR SELLING THE FRANCHISE IN YEAR 3 AND THE FORECAST OF HOW EACH FRANCHISEWILL DO OVER THE THREE-YEAR PERIOD. FRANCHISE L’S CASH FLOWS WILL START OFFSLOWLY BUT WILL INCREASE RATHER QUICKLY AS PEOPLE BECOME MORE HEALTHCONSCIOUS, WHILE FRANCHISE S’S CASH FLOWS WILL START OFF HIGH BUT WILL TRAILOFF AS OTHER CHICKEN COMPETITORS ENTER THE MARKETPLACE AND AS PEOPLE BECOMEMORE HEALTH CONSCIOUS AND AVOID FRIED FOODS.FRANCHISE L SERVES BREAKFASTAND LUNCH, WHILE FRANCHISE S SERVES ONLY DINNER, SO IT IS POSSIBLE FOR YOUTO INVEST IN BOTH FRANCHISES.YOU SEE THESE FRANCHISES AS PERFECT

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Term
Spring
Professor
Unknown
Tags
Net Present Value, Internal rate of return

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