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##### FINC 400 Week 5 Homework Problems

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solution

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Question;Complete the following problems:Problem 12-10 - Refer to problems at the end of the chapter for details and instructions:Use the template to complete the problem:Solution:a) Payback MethodDiaz Camera CompanyProject A$10,000Project B$10,000Cost of Capital10%YearProject AProject B1$6,000$5,0002$4,000$3,0003$3,000$8,000b) NPV METHODProject AYear Cash Flow PVIF @ 10%123Present Value of Inflows =Present Value of Outflows =Net Present Value =Show your work!Payback for APayback for BPresentValueYearsYearsYear123Project BCash FlowPVIF @ 10%Present Value of Inflows =Present Value of Outflows =Net Present Value =c) Should a firm normally have more confidence in answer a or answer b? Explain.PresentValueProblem 12-13 - Refer to problems at the end of the chapter for details and instructions:Use the template to complete the problem:Homeland Security SystemsEquipment$40,000YearCash Flow1$20,0002$18,0003$13,000Solution:STEP 1:Show your work!Average the inflowsSTEP 2:Divide investment by annuity from step 1STEP 3:Find the rate that corresponds to the value in Step 2:STEP 4:Calculate the Present Value at 14%Because the inflows are biased toward the early years, we will use the higher rate of 14%.Year123Cash FlowSTEP 5:PVIF @ 14% Present ValueCalculate the Present Value at 15%Since the NPV is slightly over $40,000, we need to try a higher rate. We will try 15%.INTERPOLATION:Year123Cash FlowPVIF @ 15% Present ValuePV @ 14%PV @ 15%PV @ 14%CostIRR =b) With a cost of capital of 12 percent, should the machine be purchased?Explain:Problem 12-21 - Refer to problems at the end of the chapter for details and instructions:Use the template to complete the problem:Caffeine Coffee CompanyInvestment$27,000Cost of Capital12%Year123Solution:a) YearInflows123Cash Inflows$15,000$12,000$9,000PVIF =b)RateNumberof PeriodsFVIFFutureValueProblem 13-3 - Refer to problems at the end of the chapter for details and instructions:Use the template to complete the problem:Northern Wind PowerSolution:Salesa)Possible Market ReactionProbabilitiesin UnitsLow Response500.10Moderate Response700.40High Response900.20Very High Response1400.30D = DPDPDP=b)D507090140(D D) (D D) 2D=()2=D D P0.00P(D D)2PDProblem 13-10 - Refer to problems at the end of the chapter for details and instructions:Use the template to complete the problem:Sensor TechnologySolution:Profits:StandardCoefficient ofExpected ValueDeviationVariation1$90$313$120$526$150$839$200$146YearExplain: b)Problem 13-15 - Refer to problems at the end of the chapter for details and instructions:Use the template to complete the problem:Years12345Payne Medical LabsProduct 1Product 2$25,000$16,000$30,000$22,000$38,000$34,000$31,000$29,000$19,000$70,000Solution:Year12345Inflows$25,000$30,000$38,000$31,000$19,000Product 1PVIF @ 10%PV of InflowsInvestmentNet Present ValueAdditional InformationDiscount Rate - Product 110%Discount Rate - Product 215%Investment$90,000Year12345Inflows$16,000$22,000$34,000$29,000$70,000Product 2PVIF @ 15%PV of InflowsInvestmentNet Present ValuePV$90,000PV$90,000Which product should be selected using net present value analysis?

Paper#48286 | Written in 18-Jul-2015

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