| 10.7 | Chapter 10 |
| A | Uneven Cash Flow Stream |
| Time | CF |
| 0 | -15000000 |
| 1 | 5000000 |
| 2 | 10000000 |
| 3 | 20000000 |
| $16,108,951.52 | $12,836,213.37 | $10,059,587.41 |
| Accept | NPV>0 |
| B |
| Time | CF |
| 0 | -15000000 |
| 1 | 20000000 |
| 2 | 10000000 |
| 3 | 6000000 |
| $18,300,939.42 | $15,954,169.80 | $13,897,838.42 |
| Accept | NPV>0 |
| b. IRR |
| A | 43.97% | >5% | >10% | >15% | Accept |
| B | 82.03% | >5% | >10% | >15% | Accept |
| 10.8 |
| Annuity |
| NPV | | | NPV |
| PV of cash flows | | $17,508.71 | $408.71 | Accept |
| PV of cash flows | | $25,748.11 | $3,318.11 | Accept |
| IRR |
| | | 14.00% |
| Truck | | 14.00% |
| MIRR |
| Future value of annuity | | ($33,711.53) |
| MIRR | | 14.54% | >14% | Accept |
| Pulley |
| MIRR |
| Future value of annuity | | $49,575.78 |
| MIRR | | 17.19% | >14% | Accept |
| 10.10' |
| Project S |
| pv of cash flows | $10,814.33 | $814.33 | npv |
| Project L |
| pv of cash flows | $26,675.34 | $1,675.34 | npv | Accept |
| IRR |
| Project S | 15.24% | Accept |
| Project L | 14.67% |
| MIRR | Project S |
| Future value of annuity | | ($19,058.54) |
| MIRR | | 13.77% | Accept |
| MIRR | Project L |
| Future value of annuity | | ($47,011.07) |
| MIRR | | 13.46% |
| Profitability Index |
| PI | PV of cash flows/Initial investment |
| Project S | 1.08 | Accept |
| Project L | 1.07 |
| Project L to be selected on the basis of NPV |
| 10.12 |
| a. |
| Purchase price | 900000 |
| Installation cost | 165000 |
| | 1065000 |
| Annuity |
| PV of cash flows | $1,201,578.34 |
| Less: Initial | $136,578.34 | npv | accept |
| Irr | 19.22% | irr | irr>cost of capital | | accept |
| Reduce the cash flows by the amount of environmental costs | | | | c. |
| r | NPVA | NPVB |
| 10 | $478.83 | $372.37 |
| 12 | $366.13 | $308.39 |
| 18 | $94.46 | $150.42 |
| 22 | ($43.14) | $67.26 |
| A | -400 | $478.83 |
| | -528 |
| | -219 |
| | -150 |
| | 1100 |
| | 820 |
| | 990 |
| | -325 |
| b. | 20.65% | A |
| | 25.84% | B |
| d. MIRR | B |
| Future value of an annuity | | $1,992.31 |
| MIRR | | 17.35% |
| MIRR | A |
| 14.91% |
| Select B at a cost of capital of 10% |
| e. Crossover rate |
| Year | A CF | B CF | Difference |
| 0 | -400 | -650 | 250 |
| | -528 | 210 | -738 |
| | -219 | 210 | -429 |
| | -150 | 210 | -360 |
| | 1100 | 210 | 890 |
| | 820 | 210 | 610 |
| | 990 | 210 | 780 |
| | -325 | 210 | -535 |
| Crossover rate | 14.76% | below the crossover rate, choose A |
| | | above the crossover rate, choose Bz |
| 10.16. |
| Equivalent Annual Annuity | | Plane A |
| Present Value of Cash Flows | | $108.14 | million | shorter life | | NPV | $8.14 |
| EAA | | $2.26 | million |
| Plane B |
| Equivalent Annual Annuity |
| NPV |
| $9.26 | millions | | | longer life |
| EAA | $1.64 | millions |
| Select A |
| 10.21 |
| | A | B |
| Year | Annual CF |
| 0 | -25000000 |
| 1 | 5000000 |
| 2 | 10000000 |
| 3 | 15000000 |
| 4 | 20000000 |
| Payback A | 2.6666666667 | years |
| Year | Annual CF | 1.5 | years | Payback B | B |
| 0 | -25000000 |
| 1 | 20000000 |
| 2 | 10000000 |
| 3 | 8000000 |
| 4 | 6000000 |
| Discounted Payback | | B |
| Period | Annual CF | Discount Rate | Discount CF |
| 0 | -25000000 | 0 | 0 |
| 1 | 20000000 | 0.9090909091 | 18181818.1818182 |
| 2 | 10000000 | 0.826446281 | 8264462.80991735 |
| 3 | 8000000 | 0.7513148009 | 6010518.40721262 |
| 4 | 6000000 | 0.6830134554 | 4098080.73219042 |
| Discounted Payback | Payback |
| | 1.825 | years | 26446280.9917355 | 6818181.81818182 |
| A |
| Period | Annual CF | Discount Rate | Discount CF |
| 0 | -25000000 | 0 | 0 |
| 1 | 5000000 | 0.9090909091 | 4545454.54545454 |
| 2 | 10000000 | 0.826446281 | 8264462.80991735 |
| 3 | 15000000 | 0.7513148009 | 11269722.0135237 |
| 4 | 20000000 | 0.6830134554 | 13660269.1073014 |
| | | | 24079639.3688956 |
| | | | 920360.631104436 |
| Disc Payback | 3.067375 | years |
denittawhite
fin5130.12.xlsx
