Course: Corporate Finance

Year of Study: II, REI, First Semester

SEMINAR NO 12 - INVESTMENTS

1. A company wants to make an investment and it has to decide between two possible
alternatives:
a) Project A:
Initial Investment = 85.000
Marginal Cash-flows generated by the project:
Year
CF

1
2
10.000
5.000
Residual Value: 5.000

3
65.000

4
75.000

5
30.000

4
15.000

5
25.000

b) Project B:
Initial Investment = 75.000
Marginal Cash-flows generated by the project:
Year
CF

1
2
45.000
50.000
Residual Value: 35.000

3
20.000

The required rate of return for any project is 10%. Decide what project should the
manager decide to do according to the criterion:
a) NPV
b) RIR
c) Payback Period (1.Static and 2.Dynamic)
d) Profitability Index
2. A company, characterized by a ROA of 12% undertakes an investment project with an
initial investment of 1000 . The CF generated by the project are 250 per year for each
of the next 10 years. The return rate required by the investors is 10%. If the residual value
of the project is 0, what is the MIRR for this project?

Course: Corporate Finance

Year of Study: II, REI, First Semester

3. An investment project requires an initial investment of 1000 and it will generate sales
of 1900 in the first year. The sales will grow then by 1% per year for the following 3
years (the total life time of the project is 4 years). Variable cost are 1500 in the first year
and fixed costs are 350 (which include the depreciation, calculated with the straight-line
method during the life-time of the project). The income tax rate is 16%. Well assume
that the investment will generate an increase in NWC of 50 in the first year. The
residual value (net cash-flow obtained form disinvesting) is 500 . If the investors require
a return of 10%, what is the NPV for this project?