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Date Submitted: 07/24/2012 04:06 PM
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...