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Question;13-1 NPV with Normal Cash Flows.;Compute the NPV for Project M and accept or reject the project with the cash;flows shown below if the appropriate cost of capital is 8 percent. (LG13-3);Project;M;Time;0;1;2;3;4;5;Cash;flow;-$1,000;$350;$480;$520;$600;$100;12-2 PV of Depreciation Tax Benefits.;Your company is considering a new project that will require $1 million of new;equipment at the start of the project. The equipment will have a depreciable;life of 10 years and will be depreciated to a book value of $150,000 using;straight-line depreciation. The cost of capital is 13 percent, and the firm?s;tax rate is 34 percent. Estimate the present value of the tax benefits from;depreciation. (LG12-4);13-3 NPV with Non-Normal Cash Flows.;Compute the NPV statistic for Project U and recommend whether the firm should;accept or reject the project with the cash flows shown below if the appropriate;cost of capital is 10 percent. (LG13-3);Project U;Time;0;1;2;3;4;5;Cash flow;-$1,000;$350;$1,480;$520;$300;-$100;13-4 NPV with Non-Normal Cash Flows.;Compute the NPV statistic for Project K and recommend whether the firm should;accept or reject the project with the cash flows shown below if the appropriate;cost of capital is 6 percent. (LG13-3);Project K;Time;0;1;2;3;4;5;Cash flow;-$10,000;$5,000;$6,000;$6,000;$5,000;-$10,000;13-5 Payback. Compute the payback;statistic for Project B and decide whether the firm should accept or reject the;project with the cash flows shown below if the appropriate cost of capital is;12 percent and the maximum allowable payback is 3 years. (LG13-2);Project B;Time;0;1;2;3;4;5;Cash flow;-$11,000;$3,350;$4,180;$1,520;$0;$1,000;13-6 Payback. Compute the payback;statistic for Project A and recommend whether the firm should accept or reject;the project with the cash flows shown below if the appropriate cost of capital;is 8 percent and the maximum allowable payback is 4 years. (LG13-2);Project A;Time;0;1;2;3;4;5;Cash flow;-$1,000;$350;$480;$520;$300;$100;13-7 Discounted Payback. Compute the;discounted payback statistic for Project C and recommend whether the firm;should accept or reject the project with the cash flows shown below if the;appropriate cost of capital is 8 percent and the maximum allowable discounted;payback is 3 years. (LG13-2);Project C;Time;0;1;2;3;4;5;Cash flow;-$1,000;$480;$480;$520;$300;$100;13-8 Discounted Payback. Compute the;discounted payback statistic for Project D and recommend whether the firm;should accept or reject the project with the cash flows shown below if the;appropriate cost of capital is 12 percent and the maximum allowable discounted;payback is 4 years. (LG13-2);Project D;Time;0;1;2;3;4;5;Cash flow;-$11,000;$3,350;$4,180;$1,520;$0;$1,000;13-13 PI. Compute the PI statistic for;Project Z and advise the firm whether to accept or reject the project with the;cash flows shown below if the appropriate cost of capital is 8 percent. (LG;13-6);Project Z;Time;0;1;2;3;4;5;Cash flow;-$1,000;$350;$480;$650;$300;$100;13-14 PI. Compute the PI statistic for;Project Q and indicate whether you would accept or reject the project with the;cash flows shown below if the appropriate cost of capital is 12 percent. (LG;13-6);Project Q;Time;0;1;2;3;4;Cash flow;-$11,000;$3,350;$4,180;$1,520;$2,000;Use;this information to answer the next four questions. If a particular decision;method should not be used, indicate why.;Suppose your firm is considering;investing in a project with the cash flows shown below, that the required rate;of return on projects of this risk class is 8 percent, and that the maximum;allowable payback and discounted payback statistics for the project are 3.5 and;4.5 years, respectively.;Time;0;1;2;3;4;5;6;Cash;flow;-$5,000;$1,200;$2,400;$1,600;$1,600;$1,400;$1,200;13-17 Payback. Use the payback decision;rule to evaluate this project, should it be accepted or rejected? (LG13-2);13-19 IRR. Use the IRR decision rule to;evaluate this project, should it be accepted or rejected? (LG13-4);13-21 NPV. Use the NPV decision rule to;evaluate this project, should it be accepted or rejected?;(LG13-3);13-22 PI. Use the PI decision rule to;evaluate this project, should it be accepted or rejected?;(LG13-6);Use;this information to answer the next question. If you should not use a;particular decision technique, indicate why.;Suppose your firm is considering;investing in a project with the cash flows shown below, that the required rate;of return on projects of this risk class is 11 percent, and that the maximum;allowable payback and discounted payback statistics for the project are 3 and;3.5 years, respectively.;Time;0;1;2;3;4;5;Cash;flow;-$235,000;$68,800;$84,000;$141,000;$122,000;$81,200;13-28 PI. Use the PI decision rule to;evaluate this project, should it be accepted or rejected?;(LG13-6)

 

Paper#48035 | Written in 18-Jul-2015

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