Fin 515

Week 3 Problem Set

FIN 515, Professor Nader Gandaevani

DeVry University

January 23, 2016

1. NPV= -10000+FV1/(1+R)^n

= -10000+12000/(1.1)^1

= -10000+10909

=909

IRR

0=12000/(1+IRR)^1-10000

=10000=12000/(1+R)

1+R=12000/10000

1+R=1.2

R=1.2-1

R =0.2 or 20%

The maximum deviation 10%

8. Cash out Investment

= -100000

=+120000

N=1

When IRR cost of capital equal, still you can take it

19. Investment=5000

Cash Inflow=500/month

Payback period=I /Cash flow

=5000/500=10 month

21. Initial Investment=10000000

Investment A=2000000

When A When B

NPV= -10+2/r NPV= -10+1.5/r-2%

0=-10+2/r 0= -10+1.5/R-0.02

10=2/r 10=1.5/R-0.02

R=2/10=0.2=20% R-0.02=1.5/10

R-0.02=0.15

R=0.15+0.02

=17%

NPV= -10+2/7%=-10+28.57

=18.57%

NPV= -10+1.5/0.07-0.02

=- 10+1.5/0.05= -10+30=20

-10+2/r= -10+1.5/r-0.02

2/R=1.5/R-0.02

2(R-0.02)=1.5 R

2R-0.04=1.5R

2R-1.5 R=0.04

0.5 R=0.04

R=0.04/0.5

=0.08=8%

Chapter 8

1. Sales of New pizza=$20 million

Extra sale=20-40 %( 20)

=20-8=$12 million

Extra sale=20-50%(8)

=20-4=16 million

6. R-C

FCF=NI+DEP-Capex- v NWC

=250+100-200-10

=140 Million(Ans)