Finance Assignment

1. Given the following cash flows for a capital project, calculate the NPV and IRR. The
required rate of return is 8%. 
Year 0 1 2 3 4 5
Cash flow -50,000 15,000 15,000 20,000 10,000 5,000

2. An investment of $100 generates after-tax cash flows of $40 in Year 1, $80 in Year 2, and
$120 in Year 3. The required rate of return is 20%. The net present value is?

3. An investment of $20,000 will create a perpetual after-tax cash flow of $2,000. The
required rate of return is 8%. What is the investment’s profitability index?

4. FITCO is considering the purchase of new equipment. The equipment costs $350,000, and an additional $110,000 is needed to install it. The equipment will be depreciated straight-line to zero over a five-year life. The equipment will generate additional annual revenues of $265,000, and it will have annual cash operating expenses of $83,000. The equipment will be sold for $85,000 after five years. An inventory investment of $73,000 is required during the life of the investment. FITCO is in the 40% tax bracket and its cost of capital is 10%. What is the project NPV? 

5. After estimating a project’s NPV, the analyst is advised that the fixed capital outlay will be revised upward by $100,000. The fixed capital outlay is depreciated straight-line over an eight-year life. The tax rate is 40% and the required rate of return is 10%. No changes in cash operating revenues, cash operating expenses, or salvage value are expected. What is the effect on the project NPV?