Find the NPV

UNIT 3- ANSWERS

UNIT 3: TEXTBOOK PROBLEMS
CHAPTER 7: PROBLEM 1b
	Project A	Project B
Discount Rate	15%	15%
Year 0	($14,500)	($9,800)
Year 1	$8,500	$4,700
Year 2	$6,800	$4,200
Year 3	$2,800	$4,100
NPV =	($125.87)	$158.58	(Note: You will choose the project that has the highest NPV since it creates the most wealth)
CHAPTER 7: PROBLEM 2
Year	A.	B.	C.
0	$3,200	$4,600	$7,900
1	$825	$825	$825
2	$825	$825	$825
3	$825	$825	$825
4	$825	$825	$825
5	$825	$825	$825
6	$825	$825	$825
7	$825	$825	$825
8	$825	$825	$825
Payback Period =	0.00	0.00	0.00
CHAPTER 7: PROBLEM 8
Year	Project A	Project B
0	($5,200)	($3,600)
1	1,800	1,300
2	3,200	2,100
3	2,200	1,800
IRR =	0.00%	0.00%
CHAPTER 7: PROBLEM 9
Discount Rate	15%
Year
0 (Initial Cost)	($185,000)	$185,000
1	62,000
2	62,000
3	62,000
4	62,000
5	62,000
6	62,000
7	62,000
First find the NPV	$0	(Use the built-in NPV formula in Excel but exclude using the Year 0 cash outflow)
Now calculate the Profitability Index	0.00	(Use the positive amount of the initial cost in cell C44 in the formula. You would only accept the project if the Profitability Index is above 1)
CHAPTER 8: PROBLEM 1
Cost of Souffle Maker	$27,000	($27,000)
Economic Life	6	years
# of Souffles produced per year	2,300
Cost to make each Souffle	$2
Price of each Souffle	$7
Discount Rate	14%
Tax Rate	34%
Step 1: First calculate the Operating Cash Flow	$0
Step 2: Place the answer you get for your Operating Cash Flow in the year 1 thru year 6 cells below
Year 1	$0
Year 2	$0
Year 3	$0
Year 4	$0
Year 5	$0
Year 6	$0
Step 3: Now find the NPV. Be sure to include the initial cost by using cell C58 as it is negative
NPV =	$0	(You will accept the project if the NPV is positive

 

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