1. An investment project has annual cash inflows of $4,300, $4,000, $5,200, and $4,400, and a discount rate of 13 percent.

What is the discounted payback period for these cash flows if the initial cost is $5,800? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Discounted payback period years

What is the discounted payback period for these cash flows if the initial cost is $7,900? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Discounted payback period years

What is the discounted payback period for these cash flows if the initial cost is $10,900? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Discounted payback period years

2. Stone Sour, Inc., has a project with the following cash flows:

Year Cash Flow

0 –$ 27,900

1 11,900

2 14,900

3 10,900

________________________________________

The required return is 18 percent. What is the IRR for this project? (Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16))

IRR %

3. Bill plans to open a self-serve grooming center in a storefront. The grooming equipment will cost $480,000, to be paid immediately. Bill expects aftertax cash inflows of $103,000 annually for eight years, after which he plans to scrap the equipment and retire to the beaches of Nevis. The first cash inflow occurs at the end of the first year. Assume the required return is 13 percent.

What is the project’s PI? (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161))

PI

3. Consider the following cash flows on two mutually exclusive projects for the Bahamas Recreation Corporation (BRC). Both projects require an annual return of 17 percent.

Year Deepwater Fishing New Submarine Ride

0 −$ 1,000,000 −$ 1,950,000

1 420,000 1,000,000

2 550,000 850,000

3 470,000 850,000

________________________________________

a-1. Compute the IRR for both projects. (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))

IRR

Deepwater Fishing %

Submarine Ride %

________________________________________

b-1. Calculate the incremental IRR for the cash flows. (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

Incremental IRR %

Answer: 17.15

c-1. Compute the NPV for both projects.(Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))

NPV

Deepwater Fishing $

Submarine Ride $

________________________________________

4. The Robb Computer Corporation is trying to choose between the following two mutually exclusive design projects:

Year Cash Flow (I) Cash Flow (II)

0 –$ 54,000 –$ 19,000

1 41,000 10,200

2 41,000 10,200

3 41,000 10,200

________________________________________

a-1. If the required return is 11 percent, what is the profitability index for each project? (Do not round intermediate calculations. Round your answers to 3 decimal places. (e.g., 32.161))

Profitability Index

Project I

Project II

________________________________________

b-1. What is the NPV for each project? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))

NPV

Project I $

Project II $

________________________________________

5. Mario Brothers, a game manufacturer, has a new idea for an adventure game. It can market the game either as a traditional board game or as an interactive DVD, but not both. Consider the following cash flows of the two mutually exclusive projects for Mario Brothers. Assume the discount rate for Mario Brothers is 10 percent.

Year Board Game DVD

0 –$ 1,600 –$ 3,500

1 770 2,150

2 1,350 1,650

3 290 1,200

________________________________________

a. What is the payback period for each project? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

Payback period

Board game

DVD

________________________________________

b. What is the NPV for each project? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

NPV

Board game $

DVD $

________________________________________

c. What is the IRR for each project? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

IRR

Board game %

DVD %

________________________________________

d. What is the incremental IRR? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Incremental IRR %

6. Consider the following cash flows of two mutually exclusive projects for Tokyo Rubber Company. Assume the discount rate for Tokyo Rubber Company is 8 percent.

Year Dry Prepreg Solvent Prepreg

0 –$ 1,840,000 –$ 820,000

1 1,114,000 445,000

2 928,000 740,000

3 764,000 418,000

________________________________________

a. What is the payback period for both projects? (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))

Payback period

Dry Prepeg years

Solvent Prepeg years

________________________________________

b. What is the NPV for both projects? (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))

NPV

Dry Prepeg $

Solvent Prepeg $

_______________________________________

c. What is the IRR for both projects? (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))

IRR

Dry Prepeg %

Solvent Prepeg %

________________________________________

d. Calculate the incremental IRR for the cash flows. (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

Incremental IRR %

7. Consider two mutually exclusive new product launch projects that Nagano Golf is considering. Assume the discount rate for Nagano Golf is 13 percent. (Do not round intermediate calculations. Round your “PI” answers to 3 decimal places (e.g., 32.161) and other answers to 2 decimal places. (e.g., 32.16))

Project A: Nagano NP-30.

Professional clubs that will take an initial investment of $640,000 at time 0.

Next five years (Years 1–5) of sales will generate a consistent cash flow of $275,000 per year.

Introduction of new product at Year 6 will terminate further cash flows from this project.

Project B: Nagano NX-20.

High-end amateur clubs that will take an initial investment of $650,000 at Time 0.

Cash flow at Year 1 is $190,000. In each subsequent year cash flow will grow at 10 percent per year.

Introduction of new product at Year 6 will terminate further cash flows from this project.

Year NP-30 NX-20

0 –$ 640,000 –$ 650,000

1 275,000 190,000

2 275,000 209,000

3 275,000 229,900

4 275,000 252,890

5 275,000 278,179

________________________________________

Complete the following table:

NX-30 NX-20

Payback

years

years

IRR

%

%

PI

NPV $

$

________________________________________

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