1. Use the above cash-flow stream this time the interest rate for years 0 through 2 is 6% and the interest rate for years 3 through 9 is 8%. Use equivalence to calcuate the value of the cash flow at the end of year 0. Round all results to the nearest whole dollars.
Question 2 through 6 relate to the following cash-flow diagram:
2. What is the FW(7%) (at the end of period 8) of the given cash-flow stream?
3. Show that the PW(7%) and the FW(7%) of the given cash-flow stream are equivalent.
4. Calculate the PW(i) of the given cash-flow stream for i=0%, 2%, 4%, 6%, 8%, and 10%. You may plot the results as a graph similar to figure 8.2 if you want. What do these PW(i)'s tell you about the IRR for the cash-flow stream?
5. What is the payback period (PP) of the given cash-flow stream? Interpolate to the nearest 0.1 year.
6. What is the discount payback period, DPP((7%) of the given cash-flow stream?
Question 7 through 9 relate to the following situation: Four different software projects have been proposed. All projects have an identical 6year lifespan with cash-flow profiles estimated as shown in the following table:
|
|
P1
|
P2
|
P3
|
P4
|
|
Investment
|
$200,000
|
$750,000
|
$200,000
|
$450,000
|
|
Annual Revenue
|
$250,000
|
$500,000
|
$60,000
|
$200,000
|
|
Annual Cost
|
$50,000
|
$20,000
|
$10,000
|
$40,000
|
|
Salvage value
|
$0
|
$0
|
$0
|
$50,000
|
7. Show the metrix of all theoretically possible investiment alternatives.
8. Proposal P1 is to modify an existing system, and P2 is to replace it with a commercial package, so these are mutually exclusive proposals. P3 is an optional add-on to the commercial package, so it is contingent on P2. Indicate which alternatives are not feasible and explain why they are infeasible.
9. Using the answer to the previous question, calculate the cash-flow profiles for each feasible alternative. Show the cash-flow profiles using the same format (i.e., as a table) as shown for the original proposals.