Chapter 11-1



Chapter 11-1 Soln.

1. Project K costs $52,125, and its expected net cash inflows are $12,000 per year for 8 years, and its WACC is 12 percent. What is the project’s NPV?

11-1 Financial calculator solution: Input CF0 = -52125, CF1-8 = 12000, I/YR = 12, and then

solve for NPV = $7,486.68.

2. Refer to problem 1. What is the project’s IRR?

11-2 Financial calculator solution: Input CF0 = -52125, CF1-8 = 12000, and then solve for IRR =

16%.

3. Refer to problem 1. What is the project’s MIRR?

11-3 MIRR: PV costs = $52,125.

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4. Refer to problem 1. What is the project’s payback?

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.

5. You are looking at a new project and you have estimated the following cash flows:

Year 0: -165,000 Year 1: 63,120 Year 2: 70,800 Year 3: 91,080

Your required return for assets of this risk is 12%.

Assume we will accept the project if it pays back within two years. What is the payback period and should we accept or reject the project?

A. 1.34; Accept

B. 2.34; Accept

C. 2.34; Reject

D. 3.34; Accept

E. 3.34; Reject

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