Question 1

Question 1

Payback Period  – Given the cash flows of the four projects, A, B, C, and D, and using the Payback Period decision model, which projects do you accept and which projects do you reject with a three year cut-off period for recapturing the initial cash outflow? Assume that the cash flows are equally distributed over the year for Payback Period calculations.

Projectss Project Cost C ash F low Y ear One Cash F low Y ear Two T wo Cash F low Y ear Thr ee Cash Flo F low w Year Year F our C ash ash F low year year F i ve Cash Flo F low w Y ear Si Six

A

B

C

D

$10,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000

$25,000 $2,000 $8,000 $14,000 $20,000 $26,000 $32,000

$45,000 $10,000 $15,000 $20,000 $20,000 $15,000 $10,000

$100,000 $40,000 $30,000 $20,000 $10,000 $0 $0

Question 2

Payback Period  – What are the Payback Periods of Projects E, F, G and H? Assume all cash flows are evenly spread throughout the year. If the cut-off period is three years, which projects do you accept?

Project Proje ctss Cost C ash F low Y ear One Cash F low Y ear Two T wo Cash F low Y ear Thr ee Cash Flo F low w Year Year F our C ash ash F low year year F i ve Cash Flo F low w Y ear Six Si x

E

F

G

H

$40,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000

$250,000 $40,000 $120,000 $200,000 $200,000 $200,000 $200,000

$75,000 $20,000 $35,000 $40,000 $40,000 $35,000 $20,000

$100,000 $30,000 $30,000 $30,000 $20,000 $10,000 $0

Question 3

Net Present Value  – Swanson Industries has a project with the following projected cash flows: Initial Cost, Year 0: $240,000 Cash flow year one: $25,000 Cash flow year two: $75,000

Cash flow year three: $150,000 Cash flow year four: $150,000 a. Using a 10% discount rate for this project and the NPV model should this project be accepted or rejected? b. Using a 15% discount rate? c.

Using a 20% discount rate?

Question 4

Net Present Value  – Campbell Industries has a project with the following projected cash flows: Initial Cost, Year 0: $468,000 Cash flow year one: $135,000 Cash flow year two: $240,000 Cash flow year three: $185,000 Cash flow year four: $135,000 d. Using an 8% discount rate for this project and the NPV model should this project be accepted or rejected? e. Using a 14% discount rate? f.

Using a 20% discount rate?

Question 5

Net Present Value  – Swanson Industries has four potential projects all with an initial cost of $2,000,000. The capital budget for the year will only allow Swanson industries to accept one of the four projects. Given the discount rates and the future cash flows of each project, which project should they accept?

Cash F lows Year one Year two Year three Year four Year five Discount Rate

Pr oject M

Pr oject N

Pr oject O

Pr oject P

$500,000 $500,000 $500,000 $500,000 $500,000 6%

$600,000 $600,000 $600,000 $600,000 $600,000 9%

$1,000,000 $800,000 $600,000 $400,000 $200,000 15%

$300,000 $500,000 $700,000 $900,000 $1,100,000 22%

Question 6

Question 7

The Delta company is planning to purchase a machine known as machine X. Machine X would cost $25,000 and would have a useful life of 10 years with zero salvage value. The expected annual cash inflow of the machine is $10,000. Required: Compute payback period of machine X and conclude whether or not the machine would be purchased if the maximum desired payback period of Delta company is 3 years. Question 8

An investment of $200,000 is expected to generate the following cash inflows in six years: Year 1: $70,000 Year 2: $60,000 Year 3: $55,000 Year 4: $40,000 Year 5: $30,000 Year 6: $25,000 Required: Compute payback period of the investment. Should the investment be made if management wants to recover the initial investment in 3 years or less? Question 9

Question 10

Question 11

Question 12

Question 13

Question 14

Calculate PBP, NPV & IRR from the following information. The cost of project is MVR 170,000. Following are the annual cash inflow from the project. Cost of capital is 10%. (5%)

Question 15

Calculate PBP, NPV & IRR from the following information. The cost of project is MVR 200,000. Following are the annual cash inflow from the project. Cost of capital is 20%. (10%)