Look at the cash flows for projects F and G given below. Cash Flows ($) NPV IRR at Project со F G C1 C2 C3 C4 (15,000) 7,200 7,200 7,200 0 20.7 2,905 (15,000) 3,600 3,600 3,600 3,600 3,600 3,600 3,600 3,600 17.3 4,206 C5 C6 C7 C8 (%) 10% 0 0 0 0 The cost of capital was assumed to be 10%. Assume that the forecasted cash flows for projects of this type are overstated by 7% on average. That is, the forecast for each cash flow from each project should be reduced by 7%. But a lazy financial manager, unwilling to take the time to argue with the projects' sponsors, instructs them to use a discount rate of 17%. a. What are the projects' true NPVs? (Do not round intermediate calculations. Round your answers to nearest dollar amount.) Project F Project G NPV at 10% b. What are the NPVs at the 17% discount rate? (Do not round intermediate calculations. Round your answers to nearest dollar amount.) Project F Project G NPV at 17%
Look at the cash flows for projects F and G given below. Cash Flows ($) NPV IRR at Project со F G C1 C2 C3 C4 (15,000) 7,200 7,200 7,200 0 20.7 2,905 (15,000) 3,600 3,600 3,600 3,600 3,600 3,600 3,600 3,600 17.3 4,206 C5 C6 C7 C8 (%) 10% 0 0 0 0 The cost of capital was assumed to be 10%. Assume that the forecasted cash flows for projects of this type are overstated by 7% on average. That is, the forecast for each cash flow from each project should be reduced by 7%. But a lazy financial manager, unwilling to take the time to argue with the projects' sponsors, instructs them to use a discount rate of 17%. a. What are the projects' true NPVs? (Do not round intermediate calculations. Round your answers to nearest dollar amount.) Project F Project G NPV at 10% b. What are the NPVs at the 17% discount rate? (Do not round intermediate calculations. Round your answers to nearest dollar amount.) Project F Project G NPV at 17%
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Look at the cash flows for projects F and G given below.
Cash Flows ($)
NPV
IRR
at
Project
со
F
G
C1 C2 C3 C4
(15,000) 7,200 7,200 7,200 Ө
(15,000) 3,600 3,600 3,600 3,600 3,600 3,600 3,600 3,600 17.3 4,206
C5
C6
C7
Cg
(%) 10%
0
Ө
Ө
Ө
20.7 2,905
The cost of capital was assumed to be 10%. Assume that the forecasted cash flows for projects of this type are overstated by 7% on
average. That is, the forecast for each cash flow from each project should be reduced by 7%. But a lazy financial manager, unwilling to
take the time to argue with the projects' sponsors, instructs them to use a discount rate of 17%.
a. What are the projects' true NPVs? (Do not round intermediate calculations. Round your answers to nearest dollar amount.)
Project F
Project G
NPV at 10%
b. What are the NPVs at the 17% discount rate? (Do not round intermediate calculations. Round your answers to nearest dollar
amount.)
Project F
Project G
NPV at 17%
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