Question

A new computer system will require an initial outlay of $19,500, but it will increase the firm’s cash flows by

$3,900 a year for each of the next 6 years.

a. Calculate the NPV and decide if the system is worth installing if the required rate of return is 8%. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.)

Net present value:

Worth Installing: 

b. Calculate the NPV and decide if the system is worth installing if the required rate of return is 13%. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.)

Net present value:

Worth Installing: 

c. How high can the discount rate be before you would reject the project? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Maximum Discount Rate:

 

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Question

1- Compute K_e and K_n under the following

circumstances:

a. D₁ = $4.60, P₀ = $92, g = 6%, F = $5.00. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Ke______%

Kn_______%

b. D₁ = $.26, P₀ = $25, g = 6%, F = $2.50. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Ke______%

Kn_______%

c. E₁ (earnings at the end of period one) = $5, payout ratio equals 40 percent, P₀ = $29, g = 8.5%, F = $2.80. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Ke_______%

Kn________%

d. D₀ (dividend at the beginning of the first period) = $4, growth rate for dividends and earnings (g) = 7%, P₀ = $55, F = $5. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Ke________%

Kn_________%

 

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