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- Assume a $260,000 investment and the following cash flows for two products: Year Product X Product Y 1 23 $ 90,000 80,000 81,000 40,000 $ 80,000 70,000 50,000 80,000 a. Calculate the payback for products X and Y. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Product X Product Y years yearsQUESTION 1 For the below Cash Flow, find the total PW value using 10% interest rate years 0 1 2 3 4 5 6 cost $ 2,719 1,000.00 3,010 4,000.00 1,000.00ed ok O t 1 ht 0 ences For the given cash flows, suppose the firm uses the NPV decision rule. Cash Flow Year 0 123 a. NPV b. NPV -$ 150,000 a. At a required return of 10 percent, what is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. At a required re urn of 20 percent, what is the NPV of the project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) 66,000 73,000 57,000
- uo 5:57 O116% ",ll7& O 100 Jo E Expert Q&A What is the CW, when i=10% per year, of $1,500 per year starting in one year and continuing forever, and $10,000 at the end of year 5 repeating every 4 years thereafter, and continuing forever? a. Draw a cash flow diagram b. Explain in words how you would approach the problem c. When i =10%, what value of N, practically speaking, defines "forever"?Year Cash Flow 0 -$ 17,400 1 9,700 8,600 5,100 2 3 a. What is the profitability index for the set of cash flows if the relevant discount rate is 11 percent? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) b. What is the profitability index for the set of cash flows if the relevant discount rate is 16 percent? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) c. What is the profitability index for the set of cash flows if the relevant discount rate is 23 percent? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) a. Profitability index b. Profitability index c. Profitability indexD Open recovered wor x✓ fx 0 A B C D E F OMEGA PROJECT CASH FLOW INFORMATION Year Inflow Outflow = Newflow 0 1 2 3 G -$225,000 -$190,000 $150,000 $190,000 $215,000 $175,000 $197,000 $70,000 $582,000 $225,000 0 $190,000 $150,000 0 $220,000 $30,000 4 $215,000 0 5 $205,000 $30,000 6 $197,000 0 7 $100,000 $30,000 Total $1,087,000 $505,000 Required ROI 18% Project Omega NPV (Year 0) Project Omega Total NPV Which of the two projects would you fund and why? ▶ 3T Company Data + Ready have on project selection? (Reference Section 2.4, pg 38-39) 19 MAY 910 30 H NPV I K L M N O ALPHA PROJECT CASH FLOW INFORMATION Year Inflow Outflow = 0 1 $50,000 2 $150,000 3 $250,000 4 $250,000 5 $200,000 6 $180,000 7 $120,000 Total $ 1,200,000 Required ROI Project Alpha NPV (Year 1). Project Alpha NPV 1 tv $300,000 $100,000 0 $50,000 0 $50,000 0 $30,000 $530,000 18% d P Newflow -$300,005 -$50,000 $150,000 $200,000 $250,000 $150,000 $180,000 $90,000 $670,000 A Q NPV
- Year Net Cash Flow Discount Factor Present Value (using the factor) Present Value (using Excel formula) 0 $ (3,500,000.00) 1 $(3,500,000.00) ($3,500,000.00) 1 $900,000.00 0.90909 $818, 181.00 $818, 181.82 2 $ 900,000.00 0.82645 $743,805.00 $743, 801.65 3 $900,000.00 0.75131 $676, 179.00 $676, 183.32 4 $ 900,000.00 0.68301 $614,709.00 $614,712.11 5 $900,000.00 0.62092 $558, 828.00 $558,829.19 Net Present Value $(88,298.00) $(88,291.91) 3. Now assume that inflation is estimated as a 5% increase each year (starting with Year 1) for the entire 5 years. Calculate the new net cash flow values for each year. Hint: You should start with 5% increase for Year 1 net cash flow.($ thousands) Present value at 19% Net cash flow Net present value 0 1 4 -13,700 -1,594 -13,700 -1,339 3,541 (sum of PVs). Period 2 3 6 3,057 6,433 10,644 10,095 5,867 2,159 3,817 5,308 4,230 2,066 5 7 3,379 1,000 Restate the above net cash flows in real terms. Discount the restated cash flows at a real discount rate. Assume a 19% nominal rate and 11% expected inflation. NPV should be unchanged at +3,541, or $3,541,000. Note: Negative answers should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers in thousands rounded to the nearest whole number. Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Real Net Cash Flows NPVUneven Cash Flow Stream Year Cash Stream A Cash Stream B 1 $100 $300 2 400 400 3 400 400 4 400 400 5 300 100 What is the value of each cash flow stream at a 0% interest rate? Round your answers to the nearest cent.Stream A $ _______Stream B $ _______
- What is Project A's Modified Internal Rate of Return with a WACC of 7.75%? YEAR 0 1 2 3 4 CASH FLOWS Project A -$1050 675 650 Project B -$1050 360 360 360 360ces Year 0 1 Cash Flow (A) -$430,000 41,500 2 64,500 3 81,500 4 545,000 Cash Flow (B). -$ 42,500 20,900 12,800 21,100 17,900 The required return on these investments is 10 percent. a. What is the payback period for each project? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b. What is the NPV for each project? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. c. What is the IRR for each project? Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e. d. What is the profitability index for each project? Note: Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161. e. Based on your answers in (a) through (d), which project will you finally choose? a. Project A Project B b. Project A Project B years years Q Search < Prev 5 of 5 Next LYear Net Cash Flow Discount Factor Present Value (using the factor) Present Value (using Excel formula) 0 $ (3,500,000.00) 1 $ (3,500,000.00) ($3,500,000.00) 1 $ 900,000.00 0.90909 $ 818,181.00 $818,181.82 2 $ 900,000.00 0.82645 $ 743,805.00 $743,801.65 3 $ 900,000.00 0.75131 $ 676,179.00 $676,183.32 4 $ 900,000.00 0.68301 $ 614,709.00 $614,712.11 5 $ 900,000.00 0.62092 $ 558,828.00 $558,829.19 Net Present Value $ (88,298.00) $ (88,291.91) 3. Now assume that inflation is estimated as a 5% increase each year (starting with Year 1) for the entire 5 years. Calculate the new net cash flow values for each year. start with 5% increase for Year 1 net cash flow. Year Net Cash Flow 0 $…