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6 $450,000

9-4A. (a) NPV =  - $1,950,000


t 1 (1  .09) t
= $450,000 (4.486) - $1,950,000
= $2,018,700 - $1,950,000 = $68,700
$2,018,700
(b) PI =
$1,950,000
= 1.0352
(c) $1,950,000 = $450,000 [PVIFAIRR%,6 yrs]

4.333 = PVIFAIRR%,6 yrs

IRR = about 10% (10.1725%)


(d) Yes, the project should be accepted.

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6 $12,000
9-6A. (a) NPVA =  - $50,000
t 1 (1  .12) t
= $12,000 (4.111) - $50,000
= $49,332 - $50,000 = -$668
6 $13,000
NPVB =  - $70,000
t 1 (1  .12) t
= $13,000 (4.111) - $70,000
= $53,443 - $70,000 = -$16,557
$49,332
(b) PIA =
$50,000
= 0.9866
$53,443
PIB =
$70,000
= 0.7635
(c) $50,000 = $12,000 [PVIFAIRR%,6 yrs]

4.1667 = PVIFAIRR%,6 yrs


IRRA = 11.53%
$70,000 = $13,000 [PVIFAIRR%,6 yrs]

5.3846 = PVIFAIRR%,6 yrs

IRRB = 3.18%
Neither project should be accepted.

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9-7A. (a) Project A:


Payback Period = 2 years + $100/$200 = 2.5 years
Project A:
Discounted Payback Period Calculations:

Cumulative
Undiscounted Discounted Discounted
Year Cash Flows PVIF10%,n Cash Flows Cash Flows

0 -$1,000 1.000 -$1,000 -$1,000


1 600 .909 545 -455
2 300 .826 248 -207
3 200 .751 150 -57
4 100 .683 68 11
5 500 .621 311 322

Discounted Payback Period = 3.0 + 57/68 = 3.84 years.


Project B:
Payback Period = 2 years + $2,000/$3,000 = 2.67 years
Project B:
Discounted Payback Period Calculations:
Cumulative
Undiscounted Discounted Discounted
Year Cash Flows PVIF10%,n Cash Flows Cash Flows

0 -$10,000 1.000 -$10,000 -$10,000


1 5,000 .909 4,545 -5,455
2 3,000 .826 2,478 -2,977
3 3,000 .751 2,253 -724
4 3,000 .683 2,049 1,325
5 3,000 .621 1,863 3,188

Discounted Payback Period = 3.0 + 724/2,049 = 3.35 years.


Project C:
Payback Period = 3 years + $1,000/$2,000 = 3.5 years
Project C:
Discounted Payback Period Calculations:
Cumulative
Undiscounted Discounted Discounted
Year Cash Flows PVIF10%,n Cash Flows Cash Flows

0 -$5,000 1.000 -$5,000 -$5,000


1 1,000 .909 909 -4,091
2 1,000 .826 826 -3,265
3 2,000 .751 1,502 -1,763
4 2,000 .683 1,366 -397
5 2,000 .621 1,242 845

Discounted Payback Period = 4.0 + 397/1,242 = 4.32 years.

Project Traditional Payback Discounted Payback


A Accept Reject
B Accept Reject
C Reject Reject

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