Fin 3000 Can you answer the first Q and third Q, please? I hope you can check up these answer of another questions.
Class,
Due to a format error that I didn’t notice until after class, Problem 3 didn’t show properly. If you have downloaded
the file, please check. Make sure the title has “USE THIS ONE” in it.
The correct numbers are as follows:
|
Year |
0 |
1 |
2 |
3 |
4 |
5 |
|
Project A Project B |
−$400 −$600 |
$55 $300 |
$55 $300 |
$55 $50 |
$225 $50 |
$225 $49 |
|
1).Project K |
||
|
Rate of return |
0.12 |
present value of cash flows |
|
initial outlay |
($51,125) |
($51,125) |
|
Cash flows |
$12,000 |
($10,714.29) |
|
$12,000 |
($20,280.61) |
|
|
$12,000 |
($28,821.98) |
|
|
$12,000 |
($36,448.19) |
|
|
$12,000 |
($36,448.19) |
|
|
$12,000 |
($49,336.89) |
|
|
$12,000 |
($54,765.08) |
|
|
$12,000 |
($59,611.68) |
|
|
NPV for project k |
$14,890.78 |
|
|
IRR for project k |
17% |
|
|
Payback period for project K |
4.26 |
|
|
discounted payback period |
9.088497978 |
|
|
MIRR project k |
13% |
2).
|
2).Investment project A/B |
PROJECT A |
PROJECT B |
|
|
cash flows |
($25) |
($20) |
|
|
$5 |
$10 |
||
|
$10 |
$9 |
||
|
$17 |
$6 |
||
|
NPV :WACC=5% |
$3.35 |
$2.73 |
|
|
NPV :WACC=15% |
($1.66) |
($0.48) |
|
|
NPV:WACC=10% |
$0.53 |
$0.94 |
|
|
Internal rate of return |
11% |
13% |
|
|
11% |
13% |
||
|
11% |
13% |
The projects internal rate of return does not change despite the change in the cost of capital.
3).Mutually exclusive projects.
|
PROJECT A |
PROJECT B |
|
|
($400) |
($600) |
|
|
$55 |
$300 |
|
|
$55 |
$300 |
|
|
$55 |
$50 |
|
|
$225 |
$50 |
|
|
$225 |
$49 |
|
|
WACC |
10% |
10% |
|
Net present value |
$27.42 |
$20.73 |
|
Internal rate of return |
12% |
12% |
Both projects seem profitable since they have positive net present values and their internal rate of return is greater than the cost of capital but I would recommend project A since it has a higher present value.
Questions
11-8: Ethical considerations
|
Mitigated |
Not mitigated |
|
|
Initial investment |
($70) |
($60) |
|
$21 |
$20 |
|
|
$21 |
$20 |
|
|
$21 |
$20 |
|
|
$21 |
$20 |
|
|
$21 |
$20 |
|
|
WACC |
12% |
12% |
|
Net present values |
$5.09 |
$10.80 |
|
Internal rate of return |
15% |
20% |
The environmental effects should be into consideration when evaluating this project to enable the firm to identify ways to achieve sustainability in their business.
The project has positive present values for both cases whether mitigated or not, and the internal rate of returns are above the required rate of return so the project is profitable and should undertaken. To ensure sustainability the environmental effects should be mitigated.
11-9: Ethical considerations
|
Power plant |
Mitigated |
Not mitigated |
|
initial investment |
($280) |
($240) |
|
$84 |
$80 |
|
|
$84 |
$80 |
|
|
$84 |
$80 |
|
|
$84 |
$80 |
|
|
$84 |
$80 |
|
|
WACC |
17% |
17% |
|
Net present values |
($9.62) |
$13.63 |
|
Internal rate of return |
15% |
20% |
The environmental effects should be into consideration when evaluating this project to enable the firm to identify ways to achieve sustainability in their business.
The project has a negative net present value and the IRR is less than the required rate of return for the first five years if mitigation is undertaken. In the other case it seems quite profitable but it may not be sustainable in the long run. The project can be undertaken since it solves the bigger problem of unemployment and the side effects should also be mitigated since though the project may seem unprofitable in the short run, in the long run it will yield high returns.
11-17).Capital budgeting
|
PROJECT A |
PROJECT B |
|
|
Cash flows |
($300) |
($405) |
|
($387) |
$134 |
|
|
($187) |
$134 |
|
|
$100 |
$134 |
|
|
$600 |
$134 |
|
|
$850 |
$134 |
|
|
$180 |
$0 |
|
|
WACC |
12% |
12% |
|
Net present values |
$206.59 |
$69.68 |
|
Internal rate of return |
20% |
20% |
11-20).NPV
|
CASH FLOWS |
$7,500 |
|
$7,500 |
|
|
$7,500 |
|
|
$7,500 |
|
|
$7,500 |
|
|
$7,500 |
|
|
$7,500 |
|
|
$7,500 |
|
|
$7,500 |
|
|
$7,500 |
|
|
$7,500 |
|
|
$10,000 |
|
|
$10,000 |
|
|
$10,000 |
|
|
$10,000 |
|
|
$10,000 |
|
|
$10,000 |
|
|
$10,000 |
|
|
$10,000 |
|
|
$10,000 |
|
|
WACC |
9% |
|
NPV |
$74,272 |
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