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cash flows

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Question

6) A new computer system will require an initial outlay of $19,000, but it will increase the firm’s cash flows by

$3,800 a year for each of the next 8 years.

– Calculate the NPV and decide if the system is worth installing if the required rate of return is 9%. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.)

– Calculate the NPV and decide if the system is worth installing if the required rate of return is 14%. 

7) Here are the cash flows for a project under consideration:

C0 C1 C2 −$7,230 +$5,100 +$18,720 

a. Calculate the project’s net present value for discount rates of 0, 50%, and 100%. 

0%

50%

100%

b. What is the IRR of the project? (Do not round intermediate calculations. Enter your answer as a whole percent.)

8) If you insulate your office for $27,000, you will save $2,700 a year in heating expenses. These savings will last forever.

a. What is the NPV of the investment when the cost of capital is 6%? 10%?

6%

10%

b. What is the IRR of the investment? (Enter your answer as a whole percent.)

What is the payback period on this investment?

9)

Here are the expected cash flows for three projects:

 Project Year 0 1 2 3 4

A -6900 +1475 +1475 +3950 0

B -2900 0 +2900 +2950 +3950

C -6900 +1475 +1475 +3950 +5950

. What is the payback period on each of the projects?

 a

b

c

If you use a cutoff period of 2 years, which projects would you accept?

  • Project A
  • Project B
  • Project C
  • Project A and Project B
  • Project B and Project C
  • Project A and Project C
  • Projects A, B, and C
  • None

c. If you use a cutoff period of 3 years, which projects would you accept?

  • Project A
  • Project B
  • Project C
  • Project A and Project B
  • Project B and Project C
  • Project A and Project C
  • Projects A, B, and C
  • None

1. If the opportunity cost of capital is 12%, calculate the NPV for projects A, B, and C. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.)

-2. Which projects have positive NPVs?

  • Project A
  • Project B
  • Project C
  • Project A and Project B
  • Project B and Project C
  • Project A and Project C
  • Projects A, B, and C
  • None
 
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