Look at the cash flows for projects F and G given below. Cash Flows ($) Project Co F G Project F Project G C6 C8 C1 C2 C3 (6,000) 4,400 4,400 4,400 C4 C5 0 0 0 0 52.8 4,942 (6,000) 2,200 2,200 2,200 2,200 2,200 2,200 2,200 2,200 32.9 5,737 Project F Project G The cost of capital was assumed to be 10%. Assume that the forecasted cash flows for projects of this type are overstated by 8% on average. That is, the forecast for each cash flow from each project should be reduced by 8%. But a lazy financial manager, unwilling to take the time to argue with the projects' sponsors, instructs them to use a discount rate of 18%. a. What are the projects' true NPVS? (Do not round intermediate calculations. Round your answers to nearest dollar amount.) NPV at 10% IRR (8) C7 0 NPV at 10% NPV at 18% b. What are the NPVs at the 18% discount rate? (Do not round intermediate calculations. Round your answers to nearest dollar amount.)
Look at the cash flows for projects F and G given below. Cash Flows ($) Project Co F G Project F Project G C6 C8 C1 C2 C3 (6,000) 4,400 4,400 4,400 C4 C5 0 0 0 0 52.8 4,942 (6,000) 2,200 2,200 2,200 2,200 2,200 2,200 2,200 2,200 32.9 5,737 Project F Project G The cost of capital was assumed to be 10%. Assume that the forecasted cash flows for projects of this type are overstated by 8% on average. That is, the forecast for each cash flow from each project should be reduced by 8%. But a lazy financial manager, unwilling to take the time to argue with the projects' sponsors, instructs them to use a discount rate of 18%. a. What are the projects' true NPVS? (Do not round intermediate calculations. Round your answers to nearest dollar amount.) NPV at 10% IRR (8) C7 0 NPV at 10% NPV at 18% b. What are the NPVs at the 18% discount rate? (Do not round intermediate calculations. Round your answers to nearest dollar amount.)
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 ($)
Project Co
F
G
NPV
IRR
at
C4
C6
C7
Cg
C1 C2 C3
(6,000) 4,400 4,400 4,400
( % )
10%
52.8 4,942
0
0
0
0
(6,000) 2,200 2,200 2,200 2,200 2,200 2,200 2,200 2,200 32.9 5,737
Project F
Project G
The cost of capital was assumed to be 10%. Assume that the forecasted cash flows for projects of this type are overstated by 8% on
average. That is, the forecast for each cash flow from each project should be reduced by 8%. But a lazy financial manager, unwilling to
take the time to argue with the projects' sponsors, instructs them to use a discount rate of 18%.
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%
C5
0
b. What are the NPVs at the 18% discount rate? (Do not round intermediate calculations. Round your answers to nearest dollar
amount.)
NPV at 18%
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