Year Project 0 1 2 3 4 5 A -1,000 5,000 4,000 -11,000 0 0 B -2,000 500 1,400 1,0
ID: 2703465 • Letter: Y
Question
Year
Project
0
1
2
3
4
5
A
-1,000
5,000
4,000
-11,000
0
0
B
-2,000
500
1,400
1,000
1,000
1,000
C
-3,000
2,000
2,000
-3,000
2,000
1,000
a. $32,373.02 b. $8,333.32 c. $19,600.44 d. $66,937.94 2. Consider the following cash flows for projects A, B, & C that a firm is considering undertaking. The projects are not mutually exclusive (meaning the firm could do more than one if it made sense), and the applicable discount rate is 10%. Which project or projects would you want to accept?Year
Project
0
1
2
3
4
5
A
-1,000
5,000
4,000
-11,000
0
0
B
-2,000
500
1,400
1,000
1,000
1,000
C
-3,000
2,000
2,000
-3,000
2,000
1,000
Answer a. A b. B c. C d. A and C e. B and C f. A and B 3. A Richmond-based entrepreneur believes that joining Kinloch Golf Club will allow for profitable networking opportunities, thus improving her business. But she wonders if it is worth the costs of joining. If she joins, she thinks that her companyExplanation / Answer
1.PV= 1000PVIFA(3%,120)
= 1000x32.3730226
= $32,373.02
Therefore (a) $32,373.02 is the answer.
2.
B
-2,000
500
1,400
1,000
1,000
1,000
C
-3,000
2,000
2,000
-3,000
2,000
1,000
NPV of project A= -1000+(5000/1.1)+(4000/1.1^2)+(-11000/1.1^3)= $-1413.223
NPV of project B= -2000+(500/1.1)+(1400/1.1^2)+(1000/1.1^3)+(1000/1.1^4)+(1000/1.1^5)= $1666.82
NPV of project C= -3000+(2000/1.1)+(2000/1.1^2)-(3000/1.1^3)+(2000/1.1^4)+(1000/1.1^5)= $204.078
Since the NPV of project B and C is positive we can accept B and C
(e) B and C
B
-2,000
500
1,400
1,000
1,000
1,000
C
-3,000
2,000
2,000
-3,000
2,000
1,000
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