Week 3 Homework
xlsx
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School
Arizona State University *
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Course
530
Subject
Finance
Date
Apr 3, 2024
Type
xlsx
Pages
8
Uploaded by JusticeComputerEmu37
Chapter 5
1)
a.
Project A
Project B
Payback Period =
1.813559
2.084507042
According to the payback period, the company should choose project A
b.
-940.577
227.9115641
According to NPV, the company should choose project B
5)
19.58%
Yes the firm should accept the project
11)
a.
19.16%
17.50%
Deepwater fishing has the greater IRR
b. 14.96%
c.
80,805.57 90,646.24 They should choose the New Submarine ride as it has the higher NPV, which is consistent with *Incremental IRR is always consistent with NPV
16)
a.
AZM Mini SUV
AZF Full-SUV
If using payback they should cho
1.9927007299
2.150470219
b.
$ 96,622.84 $ 72,892.56 If using NPV, the AZM Mini SUV s
c.
18.83%
14.58%
If using IRR, they should choose d.
Incremental IRR analysis is not necessary. The AZM has the smallest initial investme
24)
26)
Year
0
$ (3,800,000)
1
$ 625,000 2
$ 675,000 For investing-type projects, accept the larger project when the incremental IRR is gr
percent, is greater than the required rate of return of 14 percent, choose the subma
Using Descartes rule of signs, from looking at the cash flows we know there are four IRRs for t
33.33 percen
We would accept the project when the NPV is greater than zero. See for yourself that PV(Cash Inflows) = C
{[1/(
r
– g
)] – [1/(
r
– g
)] × [(1 + g
)/(
3
$ 729,000 4
$ 787,320 5
$ 850,306 0.17804469 IRR
6
$ 918,330 0.046789397
7
$ 991,796 8 $ 1,071,140 9 $ 1,156,831 10 $ 1,249,378 11 $ (750,000)
Yes, they should accept the project since the required rate of return is less than the IRR
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-41000
20000
23000
14000
the incremental NPV method
oose AZM Mini-SUV
should be chosen
the AZM Mini SUV
ent, and the largest NPV, so it should be accepted. -3024
17172
-36420
34200
-12000
reater than the discount rate. Since the incremental IRR, 14.96 arine ride project. this project. Even with most computer spreadsheets, we have to do some trial and error. From trial and error
nt, 42.86 percent, and 66.67 percent are found. the NPV is greater than zero for required returns between 25 percent and 33.33 percent or between 42.86 p
percent.
(1 + r
)]
t
}
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Incremental
(875,000) (1,650,000) (775,000)
330,000 890,000 560,000 480,000 730,000 250,000 440,000 590,000 150,000
-675000
-930000
403000
415000
274000
467000
238000
319000
r, IRRs of 25 percent, percent and 66.67
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