INSTRUCTIONS: 

-          USE EXCEL TO RESOLVE THESE PROBLEMS

-          SHOW YOUR WORK, FORMULAS AND CALCULATIONS 

1.      Given the following capital project data:

·         Cost of automation system (invoice):                   $730,000

·         Transportation and installation:                            $140,000

·         Training:                                                                $100,000

·         Firm’s WACC:                                                      9%

·         Firm’s tax rate:                                                      35%

·         Depreciation 5 years, straight line

·         Life of project:                                                      3 years

·         Salvage value:                                                       $385,000

·         Annual cost savings (net):                                     $105,000

·         Increased annual sales (net):                                 $200,000 

Calculate (1) the payback, (2) the discounted payback, (3) the NPV, (4) the IRR, (5) the MIRR, and (6) your recommendation on the project. 

2.  The December CBOT Treasury bond futures contract is quoted at 92-19.  If annual interest rates go up by 1.50 percentage points, what is the gain or loss on the futures contract?  (Assume a $1,000 par value, and round to the nearest whole dollar.)