9. There are seven projects to consider that have the following net yearly cash
ID: 2482721 • Letter: 9
Question
9. There are seven projects to consider that have the following net yearly cash flows. The MARR for this company is 10%.
a) If there were no restrictions, which projects would you recommend?
b) If the payback period must be no greater than 4 years, which projects would you recommend?
c) If your initial budget was $19,000, which projects would you recommend?
d) If the MARR was increased to 20%, which projects would you recommend ?
0 4 6 575 489 710 1,020 2,015$3,485 300 560$980 P2 P3 P4 PS P6 P7 (12,000)S 3,200$3,100S 6,350 5,892 S 3,000) $300 $ 3,000 $ 1,502$ 985 920 1,400 (6,000) S 1,208$ 985 $ 1,328 (1,000)$ 452 560 687 52 SS 9,0001 $ (10,000)$ 700 S-1,500 S-1,580 -1,621 $ 1,735| $1,863 2,560 $ 2,200 2,100 3,200 4,532Explanation / Answer
a) All projects with positive NPV; ie: P1, P2, P4, P6, P7 b) Projects P2, P4, P6, P7 c) Based on PI ranking, projects P4, P7, P3 totalling $18000. d) Projects P4 alone. Tabulation of evaluation: Ranking on Project npv @ 10% NPV @ 20% PI payback investment PI P1 375 -1302 1.08 5.05 5000 3 5000 P2 224 -550 1.07 3.51 3000 4 P3 -1443 -2619 0.75 5.65 6000 rejected P4 425 188 1.43 1.98 1000 1 1000 P5 -2701 -4358 0.7 >9.00 9000 rejected P6 723 -1759 1.07 3.98 10000 4 P7 2266 -664 1.19 2.90 12000 2 12000 46000 18000 P1 cumulative pvifa @ pvifa @ year cash flow cash flow 10% pv 20% pv 0 -5000 1.0000 -5000 1.0000 -5000 1 575 575 0.9091 523 0.8333 479 2 489 1064 0.8264 404 0.6944 340 3 710 1774 0.7513 533 0.5787 411 4 1020 2794 0.6830 697 0.4823 492 5 2015 4809 0.6209 1251 0.4019 810 6 3485 8294 0.5645 1967 0.3349 1167 375 -1302 Pay back = 5 + 191/3485 = 5.05 years NPV at 10% = $375 NPV at 20% = -$1302 PI @ 10% = 5375/5000 = 1.08 P2 cumulative pvifa @ pvifa @ year cash flow cash flow 10% pv 20% pv 0 -3000 1.0000 -3000 1.0000 -3000 1 300 300 0.9091 273 0.8333 250 2 700 1000 0.8264 579 0.6944 486 3 1502 2502 0.7513 1128 0.5787 869 4 985 3487 0.6830 673 0.4823 475 5 920 4407 0.6209 571 0.4019 370 6 0.5645 0 0.3349 0 224 -550 Pay back = 3 + 498/985 = 3.51 years NPV at 10% = $224 NPV at 20% = -$550 PI @ 10% = 3224/3000 = 1.07 P3 cumulative pvifa @ pvifa @ year cash flow cash flow 10% pv 20% pv 0 -6000 1.0000 -6000 1.0000 -6000 1 560 560 0.9091 509 0.8333 467 2 980 1540 0.8264 810 0.6944 681 3 1400 2940 0.7513 1052 0.5787 810 4 1208 4148 0.6830 825 0.4823 583 5 985 5133 0.6209 612 0.4019 396 6 1328 6461 0.5645 750 0.3349 445 -1443 -2619 Pay back = 5 + 867/1328 = 5.65 years NPV at 10% = -$1443 NPV at 20% = -$2619 PI @ 10% = 4557/6000 = 0.75 P4 cumulative pvifa @ pvifa @ year cash flow cash flow 10% pv 20% pv 0 -1000 1.0000 -1000 1.0000 -1000 1 452 452 0.9091 411 0.8333 377 2 560 1012 0.8264 463 0.6944 389 3 687 1699 0.7513 516 0.5787 398 4 52 1751 0.6830 36 0.4823 25 5 0 0.6209 0 0.4019 0 6 0 0.5645 0 0.3349 0 425 188 Pay back = 1 + 548/560 = 1.98 years NPV at 10% = $425 NPV at 20% = $188 PI @ 10% = 1425/1000 = 1.43 P5 cumulative pvifa @ pvifa @ year cash flow cash flow 10% pv 20% pv 0 -9000 1.0000 -9000 1.0000 -9000 1 700 700 0.9091 636 0.8333 583 2 1500 2200 0.8264 1240 0.6944 1042 3 1580 3780 0.7513 1187 0.5787 914 4 1621 5401 0.6830 1107 0.4823 782 5 1735 7136 0.6209 1077 0.4019 697 6 1863 8999 0.5645 1052 0.3349 624 -2701 -4358 Pay back > 9 years NPV at 10% = -$2701 NPV at 20% = -$4358 PI @ 10% = 6299/9000 = 0.7 P6 cumulative pvifa @ pvifa @ year cash flow cash flow 10% pv 20% pv 0 -10000 1.0000 -10000 1.0000 -10000 1 2560 2560 0.9091 2327 0.8333 2133 2 2200 4760 0.8264 1818 0.6944 1528 3 2100 6860 0.7513 1578 0.5787 1215 4 3200 10060 0.6830 2186 0.4823 1543 5 4532 14592 0.6209 2814 0.4019 1821 6 0 14592 0.5645 0 0.3349 0 723 -1759 Pay back = 3 + 3140/3200 = 3.98 years NPV at 10% = $723 NPV at 20% = -$1759 PI @ 10% = 10723/10000 = 1.07 P7 cumulative pvifa @ pvifa @ year cash flow cash flow 10% pv 20% pv 0 -12000 1.0000 -12000 1.0000 -12000 1 3200 3200 0.9091 2909 0.8333 2667 2 3100 6300 0.8264 2562 0.6944 2153 3 6350 12650 0.7513 4771 0.5787 3675 4 5892 18542 0.6830 4024 0.4823 2841 5 0 18542 0.6209 0 0.4019 0 6 0 18542 0.5645 0 0.3349 0 2266 -664 Pay back = 2 + 5700/6350 = 2.9 years NPV at 10% = $2266 NPV at 20% = -$664 PI @ 10% = 14266/12000 =1.19
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