Fin515 Week 6 Homework

FI515 Week 6 Homework Chapter 10

P10-8 NPV, IRR, MIRR

TRUCK

5 years of cash flows

Year Cash Flow (A)

0 (17,100) Up front Investment

1 5,100

2 5,100

3 5,100 NPV IRR MIRR

4 5,100

5 5,100 Accept $408.71 14.99% 14.54% Solution

Cost of Capital 14%

PULLEY

5 years of cash flows

Year Cash Flow (A)

0 (22,430) Up front Investment

1 7,500

2 7,500

3 7,500 NPV IRR MIRR

4 7,500

5 7,500 Accept $3,318.11 20.00% 17.19% Solution

Cost of Capital 14%

P10-9 NPV and IRR

Forklift/Gas-powered

6 years of cash flows

Year Cash Flow (A)

0 (17,500) Up front Investment

1 5,000

2 5,000

3 5,000

4 5,000 NPV IRR MIRR

5 5,000

6 5,000 $2,729.50 17.97% 15.05% Solution

Cost of Capital 12%

Forklift/Electri-powered

6 years of cash flows

Year Cash Flow (A)

0 (22,000) Up front Investment

1 6,290

2 6,290

3 6,290

4 6,290 NPV IRR MIRR

5 6,290

6 6,290 $3,447.10 18.00% 15.06% Solution

Cost of Capital 12%

Both the Gas-powered & Electric-powered forlifts have nearly identical IRR & MIRR but since the NPV is higher on the electric-powered forklift it should be a better investment then the gas-powered forklift. Yes, they should buy the Electric over the Gas forklift.

FI515 Week 6 Homework Chapter 11

P11-2 Operating Cash Flows p. 64

Given: Projected Sales 10,000,000

Operating Costs (non-deprec) 7,000,000

Depreciation 2,000,000

Interest Expense 2,000,000 (not used: included in WACC)

Tax Rate 40%

Yr 1 CF Book Income

Sales 10,000,000

Less: Operating Exp (7,000,000)

Less: Depreciation (2,000,000)

Operating EBT...