1.What is the payback period for the following set of cash flows?
|
Year
|
Cash Flow
|
|
0
|
-$ 7,700
|
|
1
|
1,200
|
|
2
|
2,200
|
|
3
|
2,900
|
|
4
|
1,600
|
|
|
2. An investment project has annual cash inflows of $4,400, $5,500, $6,300, and $7,600, and a discount rate of 11 percent.
What is the discounted payback period for these cash flows if the initial cost is $7,500?
3. A firm evaluates all of its projects by applying the IRR rule.
|
Year
|
Cash Flow
|
|
0
|
-$29,273
|
|
1
|
23,000
|
|
2
|
13,000
|
|
3
|
5,000
|
|
|
a. Determine the IRR for the above project.
b. If the required return is 24 percent, should the firm accept the above project?
4. A firm evaluates all of its projects by using the NPV decision rule.
|
Year
|
Cash Flow
|
|
0
|
-$28,000
|
|
1
|
24,000
|
|
2
|
15,000
|
|
3
|
11,000
|
a. At a required return of 27 percent, what is the NPV for this project?
b. At a required return of 37 percent, what is the NPV for this project?
5. For the following set of cash flows,
|
Year
|
Cash Flow
|
|
0
|
-$6,300
|
|
1
|
3,700
|
|
2
|
4,900
|
|
3
|
5,400
|
a. What is the NPV at a discount rate of 0 percent?
b. What is the NPV at a discount rate of 14 percent?
c. What is the NPV at a discount rate of 22 percent?
d. What is the NPV at a discount rate of 27 percent?
6. Mahjong, Inc., has identified the following two mutually exclusive projects:
|
Year
|
Cash Flow (A)
|
Cash Flow (B)
|
|
0
|
-$36,300
|
-$36,300
|
|
1
|
18,600
|
6,400
|
|
2
|
14,100
|
12,900
|
|
3
|
11,600
|
19,400
|
|
4
|
8,600
|
23,400
|
|
|
a. What is the IRR for Project A?
b. What is the IRR for Project B?
c. If the required return is 11 percent, what is the NPV for Project A?
d. If the required return is 11 percent, what is the NPV for Project B?
e. At what discount rate would the company be indifferent between these two projects?
7. A project has the following cash flows:
|
Year
|
Cash Flow
|
|
0
|
$64,900
|
|
1
|
-30,900
|
|
2
|
-48,800
|
a. What is the IRR for this project?
b. What is the NPV of this project, if the required return is 8.5 percent?
c. NPV at 0 percent?
d. NPV at 17 percent?
8. A project that provides annual cash flows of $12,200 for 6 years costs $51,613 today.
a. If the required return is 14 percent, what is the NPV for this project?
b. Determine the IRR for this project.