| UNIT 3: TEXTBOOK PROBLEMS |
| 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 = | | | (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 = |
| 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 = |
| 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 | | (Use the built-in NPV formula in Excel but exclude using the Year 0 cash outflow.) |
| Now calculate the Profitability Index | | (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. |
| Step 2: Place the answer you get for your Operating Cash Flow in the year 1 thru year 6 cells below. |
| Year 1 |
| Year 2 |
| Year 3 |
| Year 4 |
| Year 5 |
| Year 6 |
| Step 3: Now find the NPV. Be sure to include the initial cost by using cell C58 as it is negative. |
| NPV = | | (You will accept the project if the NPV is positive.) |
LARYHA
cf_template_textbook_problems_unit_3.xlsx
