CHAPTER 7: PROBLEM 1b | ||||||||||||||

Project A | Project B | |||||||||||||

Discount Rate | 15% | 15% | ||||||||||||

Year 0 | ($14,500) | ($9,800) | ||||||||||||

Year 1 | $8,500 | $4,700 | ||||||||||||

Year 2 | $6,800 | $4,200 | ||||||||||||

Year 3 | $2,800 | $4,100 | ||||||||||||

NPV = | #NAME? | #NAME? | (Note: You will choose the project that has the highest NPV since it creates the most wealth) | |||||||||||

CHAPTER 7: PROBLEM 2 | ||||||||||||||

Year | A. | B. | C. | |||||||||||

0 | $3,200 | $4,600 | $7,900 | |||||||||||

1 | $825 | $825 | $825 | |||||||||||

2 | $825 | $825 | $825 | |||||||||||

3 | $825 | $825 | $825 | |||||||||||

4 | $825 | $825 | $825 | |||||||||||

5 | $825 | $825 | $825 | |||||||||||

6 | $825 | $825 | $825 | |||||||||||

7 | $825 | $825 | $825 | |||||||||||

8 | $825 | $825 | $825 | |||||||||||

Payback Period = | #NAME? | #NAME? | #NAME? | |||||||||||

CHAPTER 7: PROBLEM 8 | ||||||||||||||

Year | Project A | Project B | ||||||||||||

0 | ($5,200) | ($3,600) | ||||||||||||

1 | 1,800 | 1,300 | ||||||||||||

2 | 3,200 | 2,100 | ||||||||||||

3 | 2,200 | 1,800 | ||||||||||||

IRR = | #NAME? | #NAME? | ||||||||||||

CHAPTER 7: PROBLEM 9 | ||||||||||||||

Discount Rate | 15% | |||||||||||||

Year | ||||||||||||||

0 (Initial Cost) | ($185,000) | $185,000 | ||||||||||||

1 | 62,000 | |||||||||||||

2 | 62,000 | |||||||||||||

3 | 62,000 | |||||||||||||

4 | 62,000 | |||||||||||||

5 | 62,000 | |||||||||||||

6 | 62,000 | |||||||||||||

7 | 62,000 | |||||||||||||

First find the NPV | #NAME? | (Use the built-in NPV formula in Excel but exclude using the Year 0 cash outflow) | ||||||||||||

Now calculate the Profitability Index | #NAME? | (Use the positive amount of the initial cost in cell C44 in the formula. You would only accept the project if the Profitability Index is above 1) | ||||||||||||

CHAPTER 8: PROBLEM 1 | ||||||||||||||

Cost of Souffle Maker | $27,000 | ($27,000) | ||||||||||||

Economic Life | 6 | years | ||||||||||||

# of Souffles produced per year | 2,300 | |||||||||||||

Cost to make each Souffle | $2 | |||||||||||||

Price of each Souffle | $7 | |||||||||||||

Discount Rate | 14% | |||||||||||||

Tax Rate | 34% | |||||||||||||

Step 1: First calculate the Operating Cash Flow | #NAME? | |||||||||||||

Step 2: Place the answer you get for your Operating Cash Flow in the year 1 thru year 6 cells below | ||||||||||||||

Year 1 | #NAME? | |||||||||||||

Year 2 | #NAME? | |||||||||||||

Year 3 | #NAME? | |||||||||||||

Year 4 | #NAME? | |||||||||||||

Year 5 | #NAME? | |||||||||||||

Year 6 | #NAME? | |||||||||||||

Step 3: Now find the NPV. Be sure to include the initial cost by using cell C58 as it is negative | ||||||||||||||

NPV = | #NAME? | (You will accept the project if the NPV is positive) | ||||||||||||

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