UNIT 3- ANSWERS
| UNIT 3: TEXTBOOK PROBLEMS | |||
| CHAPTER 7: PROBLEM 1b | |||
| Project A | Project B | ||
| Discount Rate | 15% | 15% | |
| Year 0 | ($14,500) | ($9,800) | |
| Year 1 | $8,500 | $4,700 | |
| Year 2 | $6,800 | $4,200 | |
| Year 3 | $2,800 | $4,100 | |
| NPV = | ERROR:#NAME? | ERROR:#NAME? | (Note: You will choose the project that has the highest NPV since it creates the most wealth) |
| CHAPTER 7: PROBLEM 2 | |||
| Year | A. | B. | C. |
| 0 | $3,200 | $4,600 | $7,900 |
| 1 | $825 | $825 | $825 |
| 2 | $825 | $825 | $825 |
| 3 | $825 | $825 | $825 |
| 4 | $825 | $825 | $825 |
| 5 | $825 | $825 | $825 |
| 6 | $825 | $825 | $825 |
| 7 | $825 | $825 | $825 |
| 8 | $825 | $825 | $825 |
| Payback Period = | ERROR:#NAME? | ERROR:#NAME? | ERROR:#NAME? |
| CHAPTER 7: PROBLEM 8 | |||
| Year | Project A | Project B | |
| 0 | ($5,200) | ($3,600) | |
| 1 | 1,800 | 1,300 | |
| 2 | 3,200 | 2,100 | |
| 3 | 2,200 | 1,800 | |
| IRR = | ERROR:#NAME? | ERROR:#NAME? | |
| CHAPTER 7: PROBLEM 9 | |||
| Discount Rate | 15% | ||
| Year | |||
| 0 (Initial Cost) | ($185,000) | $185,000 | |
| 1 | 62,000 | ||
| 2 | 62,000 | ||
| 3 | 62,000 | ||
| 4 | 62,000 | ||
| 5 | 62,000 | ||
| 6 | 62,000 | ||
| 7 | 62,000 | ||
| First find the NPV | ERROR:#NAME? | (Use the built-in NPV formula in Excel but exclude using the Year 0 cash outflow) | |
| Now calculate the Profitability Index | ERROR:#NAME? | (Use the positive amount of the initial cost in cell C44 in the formula. You would only accept the project if the Profitability Index is above 1) | |
| CHAPTER 8: PROBLEM 1 | |||
| Cost of Souffle Maker | $27,000 | ($27,000) | |
| Economic Life | 6 | years | |
| # of Souffles produced per year | 2,300 | ||
| Cost to make each Souffle | $2 | ||
| Price of each Souffle | $7 | ||
| Discount Rate | 14% | ||
| Tax Rate | 34% | ||
| Step 1: First calculate the Operating Cash Flow | ERROR:#NAME? | ||
| Step 2: Place the answer you get for your Operating Cash Flow in the year 1 thru year 6 cells below | |||
| Year 1 | ERROR:#NAME? | ||
| Year 2 | ERROR:#NAME? | ||
| Year 3 | ERROR:#NAME? | ||
| Year 4 | ERROR:#NAME? | ||
| Year 5 | ERROR:#NAME? | ||
| Year 6 | ERROR:#NAME? | ||
| Step 3: Now find the NPV. Be sure to include the initial cost by using cell C58 as it is negative | |||
| NPV = | ERROR:#NAME? | (You will accept the project if the NPV is positive) |
CHAPTER 7: PROBLEM 8 was first posted on October 22, 2019 at 1:11 pm.
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