(Download PDF) CFIN 2 2nd Edition Besley Test Bank Full Chapter
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Solutions
CHAPTER 9
1
1−
(1.10)6
9-1 NPV =−90,000 + 20,000 =−90,000 + 20,000(4.35526) =−2,894.79
0.10
Calculator solution: CF0 = -90,000, CF1 – CF6 = 20,000, I = 10; compute NPV = -2,894.79
IRR =
Calculator solution: CF0 = -90,000, CF1 – CF6 = 20,000; compute IRR = 8.89%
1
1−
(1 + IRR)5
9-2 45,000 =15,047
IRR
Calculator solution: CF0 = -45,000, CF1 – CF5 = 15,047; compute IRR = 20.0%
Calculator solution: CF0 = -320,000, CF1 – CF7 = 67,910; compute IRR = 11.0%
NPV solution:
1
1−
(1.12)7
NPV =−320,000 + 67,910 =−320,000 + 67,910(4.56376) =−10,075.29
0.12
Calculator solution: CF0 = -320,000, CF1 – CF7 = 67,910, I = 12; compute NPV = -10,075.29
1
Solutions
90,000 450,000
PB = 3 + = 3.75years ; alternative calculation: PB = = 3.75years
120,000 120,000
DPB > 5 years, which means that the project is not acceptable. At r = 11%, NPV = ($6,492)
and IRR = 10.42%.
c. Numerical solution:
1− 1 8
NPV =−$52,125 + $12,000
(1.12)
0.12
=−$52,125 + $12,000(4.96764) = $7,486.68
Financial calculator Solution: Input the appropriate cash flows into the cash flow
register, input I = 12, and then solve for NPV = $7,486.68.
2
Solutions
Spreadsheet Solution: Be careful when using the NPV function that is available with
Excel, because this function computes the present value of a series of nonconstant
future cash flows only. If you highlight a series of cash flows, the NPV function assumes
the first cash flow is CF1, not CF0. As a result, you should use the NPV function to
compute the present value of the future cash flows and then subtract the cash flow in
the current period, which is the net investment. For the current problem, you can use the
PV function to compute the present value of the $12,000 annuity and then subtract the
$52,125 cost.
1− 1 8
NPV =−$52,125 + $12,000 =0
(1+IRR)
IRR
1− 1 8
$52,125 = $12,000
(1+IRR)
IRR
Financial calculator: Input the appropriate cash flows into the cash flow register and
then solve for IRR = 16%.
Spreadsheet solution: Because this is an annuity, you can use the RATE function that is
available on the spreadsheet. PMT = $12,000 and PV = -$52,125.
9-6 Using a financial calculator, enter I = 14% and the following cash flows:
(1.14)5 −1
4,500
CostP =
TV
=15,000 = 0.14 = 29,745.47
(1+ MIRRP )n (1+ MIRRP )5
1
29,745.47 5
MIRRP = −1.0 = 0.147 =14.7%
15,000
3
Solutions
(1.14)5 −1
11,100
Cost Q =
TV
= 37,500 = 0.14 = 73,372.16
(1+ MIRRP )n (1+ MIRRQ )5
1
73,372.16 5
MIRRQ = −1.0 = 0.144 =14.4%
37,500
If the projects are independent, both are acceptable—both NPVP and NPVQ are positive. If the
projects are mutually exclusive, Project Q should be chosen because NPV Q > NPVP.
9-7 a. Calculator solution: CF0 = -75,000, CF1 = 50,000, CF2 = 40,000, I = 15; compute
NPV = --1,275.99
50,000 40,000
NPV =−75,000 + +
(1.15)1 (1.15)2
=−75,000 + 50,000(0.86957) + 40,000(0.756144) =−1,275.74
b. IRR = 13.61%
c. MIRR:
TV 50,000(1.15)1 + 40,000(1.15)0
Cost = = 75,000 =
(1+ MIRR)n (1+ MIRR)2
97,500
75,000 =
(1+ MIRR)2
Project G:
1
1 −
(1 + IRR G ) 3
180,000 = 80,100
IRR G
4
Solutions
Calculator solution: CF0 = -180,000, CF1 – CF3 = 80,100; compute IRRG = 15.96%
275,511.96
180,000 =
(1 + MIRR) 3
1
275,511.96 3
MIRR = − 1.0 = 0.1525 = 15.25%
180,000
Project J:
368,500
240,000 =
(1+ IRRJ )3
368,500
(1+ IRRJ )3 = =1.53542
240,000
1
IRRJ = (1.53542) 3 −1.0 = 0.11537 =15.37%
Calculator solution: CF0 = -240,000, CF1 – CF2 = 0, CF3 = 368,500; compute IRRJ = 15.37%
TV 368,500
Cost = = 240,000 =
(1+ MIRR) n
(1+ MIRR)3
1
368,500 3
MIRR = −1.0 = 0.1537 =15.37%
240,000
Calculator solution: CF0 = -240,000, CF1 – CF2 = 0, CF3 = 368,500; compute MIRRJ = 15.37%
Project K:
5
Solutions
Calculator solution: CF0 = -200,000, CF1 = –100,000 CF2 - CF3 = 205,000; compute IRRK =
15.53%
Summary of computations:
If the projects are mutually exclusive, Project J should be purchased. The NPVs for the three
projects are: NPVG = $5,963, NPVJ = $13,114, NPVK = $8,391.
9-9 a. Project J should be purchased, because its NPV is higher than Project K’s NPV.
b. The firm’s required rate of return must be lower than 16.9 percent. Because both
projects have positive NPVs, we know that IRRJ > r and IRRK > r. As a result, R must be
lower than both IRRJ = 16.9% and IRRK = 18.9%.
Calculator solution: Enter into your calculator CF 0 = -32,500, CF1 = 20,500, CF2 = 10,000,
CF3 = 6,500, CF4 = 7,800, and I = 16; NPV = ? = 1,076.19 (rounding difference)
Calculator solution: Enter into your calculator CF 0 = -29,800, CF1 = 4,000, CF2 = 9,000,
CF3 = 16,000, CF4 = 19,500, and I = 16; NPV = ? = 1,356.94 (rounding difference)
6
Solutions
Because NPVQ > NPVD, Project Q is preferred. Only one project can be purchased because
the projects are mutually exclusive.
Using a financial calculator, enter CF0 = -29,800, CF1 = 4,000, CF2 = 9,000, CF3 = 16,000, CF4
= 19,500, and I = 16; IRR = ? = 17.79%
9-11 Project T:
Following is a table that can be used to compute the discounted payback period and NPV:
5,323.46
DPBT = 3 + = 3.98 years
5,405.28
Calculator solution: Enter into the cash flow register CF0 = -8,000, CF1 = 2,000, CF2 = 1,000,
CF3 = 7,000, and I = 9; compute NPVT = 81.83 (rounding difference)
IRRT: enter cash flows into your calculator as shown here and solve for IRR T = 9.46%
To solve for MIRRT, input into the TVM registers of your calculator N = 3, PV = -8,000,
PMT = 0, and FV = 10,466.20; solve for I/Y = MIRRT = 9.37%
Project U:
Following is a table that can be used to compute the discounted payback period and NPV:
7
Solutions
1,743.12
DPBU =1+ =1.41 years
4,208.40
Calculator solution: Enter into the cash flow register CF 0 = -10,000, CF1 = 9,000, CF2 = 5,000,
CF3 = -3,100, and I = 9; compute NPVU = 71.51
IRRU: enter cash flows into your calculator as shown here and solve for IRR U = 9.83%
16,142.90
12,393.77 =
(1+ MIRRU )3
To solve for MIRRT, input into the TVM registers of your calculator N = 3, PV = -12,393.77,
PMT = 0, and FV = 16,142.90; solve for I/Y = MIRRU = 9.21%
8
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