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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