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Look at the cash flows for projects F and G given below.   Cash Flows($) Project C0     C1   C2   C3   C4   C5   C6   C7   C8   IRR (%)   NPV at 10%   F (7,500 )   5,000   5,000   5,000   0   0   0   0   0   44.6   4,934   G (7,500 )   2,400   2,400   2,400   2,400   2,400   2,400   2,400   2,400   27.4   5,304     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.)   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 C0     C1   C2   C3   C4   C5   C6   C7   C8   IRR (%)   NPV at 10%   F (7,500 )   5,000   5,000   5,000   0   0   0   0   0   44.6   4,934   G (7,500 )   2,400   2,400   2,400   2,400   2,400   2,400   2,400   2,400   27.4   5,304     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.)   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
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
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Look at the cash flows for projects F and G given below.

 
Cash Flows($)
Project C0     C1   C2   C3   C4   C5   C6   C7   C8   IRR (%)   NPV at 10%  
F (7,500 )   5,000   5,000   5,000   0   0   0   0   0   44.6   4,934  
G (7,500 )   2,400   2,400   2,400   2,400   2,400   2,400   2,400   2,400   27.4   5,304  
 


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.)

 



b. What are the NPVs at the 18% discount rate? (Do not round intermediate calculations. Round your answers to nearest dollar amount.)

 
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