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- In calculating IRR for a project, you determine that you must find i* that satisfies (A/P, i, 6) = 0.200. The Compound Interest Tables show that (A/P, 5%, 6) = 0.19702 and (A/P, 6%, 6) = 0.20336. Using Linear Interpolation, what is i*?Consider two assets with the following cash flow streams: Asset A generates $4 at t=1, $3 at t=2, and $10 at t=3. Asset B generates $2 at t=1, $X at t=2, and $10 at t=3. Suppose X=6 and the interest rate r is constant. Suppose r=0.2. Find the value X such that the present value of asset B is 12. Suppose the (one-period) interest rates are variable and given as follows: r01=0.1,r12=0.2, r23=0.3. Calculate the yield to maturity of asset A. (You can use Excel or ascientific calculator to find the solution numerically.)Use the future value formula to find the indicated value. FV = 12,000; i= 0.02; PMT = $400; n= ? n= (Round up to the nearest integer as needed.)
- 2. An investment has an installed cost of $412,670. The cash flows over the four-year life of the investment are projected to be $212,817, $153,408, $102,389, and $72,308. If the discount rate is zero, what is the NPV? If the discount rate is infinite, what is the NPV? At what discount rate is the NPV just equal to zero? Sketch the NPV profile for this investment based on these three points.Consider two assets with the following cash flow streams: Asset A generates $4 at t=1, $3 at t=2, and $10 at t=3. Asset B generates $2 at t=1, $X at t=2, and $10 at t=3. Suppose X=6 and the interest rate r is constant. For r=0.1, calculate the present value of the two assets. Determine the set of all interest rates {r} such that asset A is more valuable than asset Draw the present value of the assets as a function of the interest rate. Suppose r=0.2. Find the value X such that the present value of asset B is 12. Suppose the (one-period) interest rates are variable and given as follows: r01=0.1,r12=0.2, r23=0.3. Calculate the yield to maturity of asset A. (You can use Excel or ascientific calculator to find the solution numerically.)How many internal rate of return IRRs (the maximum) are suggested by Descartes' rule of signs? 7,000 8,000 2,000 Oa. 1 Ob. 2 c. 3 O d. 4 O e. 5 3,000 4,000 4,000 5,000 4,000 6,000 1,000
- Average Rate of Return Method, Net Present Value Method, and Analysis for a service company The capital investment committee of Arches Landscaping Company is considering two capital investments. The estimated operating income and net cash flows from each investment are as follows: Front-End Loader Year 1 2 3 4 5 Total Year 1 2 3 4 5 6 7 Operating Income 8 9 10 $54,000 54,000 54,000 54,000 54,000 $270,000 0.943 Each project requires an investment of $600,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 10% for purposes of the net present value analysis. Present Value of $1 at Compound Interest 6% 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 10% Net Cash Flow 0.909 0.826 0.751 $172,000 172,000 172,000 172,000 172,000 $860,000 12% 0.893 0.797 0.756 0.712 0.658 0.683 0.636 0.572 0.621 0.567 0.497 0.564 0.507 0.513 0.467 0.424 0.386 0.452 0.404 15% 0.361 0.322 0.870 0.432 0.376 0.327 0.284 0.247 Operating Income…ou invest $1000at time t=0 and an additional $5000 at time t=1/2. At time t=1/2 you have $1300 in your account and at time t=1 you have $6100 in your account. Find the dollar-weighted rate of return rd and the time-weighted rate of return rt on this investment.4. Middleton Classics would like to test the sensitivity of the estimates used for the input data to compute the net present value and internal rate of return on this investment. Ignore the payback period and the accounting rate of return. Consider a, b, and c below independently by holding everything else constant: a. What is the minimum cost of the investment (to the nearest $100) needed for the owner to accept it? b. Reset cost to $500,000. What is the minimum salvage value (to the nearest $100) needed for the owner to accept it? c.Reset salvage value to $25,000. What is the minimum annual cash flow (to the nearest $100) needed for the owner to accept it? How sensitive to changes in the input data is the decision to accept or reject this investment? Do you have to change the estimates a lot or just a little to make the investment acceptable? Comment on the results of each of these analyses.
- Determine the future value of the following single amounts. Note: Use tables, Excel, or a financial calculator. Round your final answers to nearest whole dollar amount. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Invested Amount i- n Future Value 1. $ 11,500 7% 15 23 $ 15,000 6% 14 $ 28,000 12% 14 4. S 48,000 8% 66.Calculate the project's Modified Internal Rate of Return (MIRR). What critical assumption does the MIRR make that differentiates it from the IRR? TIP : look for the definition of Modified Internal Rate of Return, and then do it in excel, easy !!! Year Net Cash flow Future Value of Net Cash flow 0 -$20.8 example 1 $4.5 $7.97 (n=6, i=10%)=fv(.1,6,,4.5) 2 $6.3 (n=5, i=10%) 3 $5.2 (n=4, i=10%) 4 $3.9 (n=3, i=10%) 5 $2.1 (n=2, i=10%) 6 $1.3 (n=1, i=10%) 7 $0.5 (n=0, i=10%) Sum = $XX.XX MIRR = ( in excel ) Rate ( 7,-20.8, xx.xx) 7.Where does the value of MIRR fall relative to the discount rate and IRR?(b) Find the time path of capital K(t) given the following rates of net investment flow functions (i) I(t) = 10t12 + 5 K(0) = 50 (ii) I(t) = 18t5 - 2 K(0) = 24 (iii) I(t) = 30t4 K(0) = 35 (iv) I(1) = 23t K(0) =15 (c) For each of (i) to (iv) in b above, find the amount of capital formation over the time interval (2,5]