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Quiz Chapter 10 - Haryo Indra

The document contains information about three projects including their expected cash flows over multiple years and cost of capital. For each project, it calculates the net present value (NPV) of the cash flows using the given cost of capital. It then states whether the project should be accepted or rejected based on whether the NPV is positive or negative.

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49 views2 pages

Quiz Chapter 10 - Haryo Indra

The document contains information about three projects including their expected cash flows over multiple years and cost of capital. For each project, it calculates the net present value (NPV) of the cash flows using the given cost of capital. It then states whether the project should be accepted or rejected based on whether the NPV is positive or negative.

Uploaded by

Haryo Hartoyo
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Table 10.

25) Given the information in Table 10.1 and 15 percent cost of capital,
(a) compute the net present value.
(b) should the project be accepted?

ANSWER :

a).
Year Cash Flow PV
$ (2,500) $ (2,500)
1 $ 1,000 $ 869.57
2 $ 1,000 $ 756.14
3 $ 1,000 $ 657.52
4 $ 1,000 $ 571.75
5 $ 1,000 $ 497.18
NPV $ 852.16

b). Because the NPV is higher than 0, so the project shoul be accepted
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Table 10.2

26) Given the information in Table 10.2 and 15 percent cost of capital,
(a) compute the net present value.
(b) should the project be accepted?

ANSWER :
a.
Year Cash Flow PV
$ (100,000)
1 $ 25,000 $ 21,739.13
2 $ 10,000 $ 7,561.44
3 $ 50,000 $ 32,875.81
4 $ 10,000 $ 5,717.53
5 $ 10,000 $ 4,971.77
6 $ 60,000 $ 25,939.66
NPV $ (1,194.67)

b. The NPV is below zero so the project should be rejected


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10) Tangshan Mining Company is considering investing in a new mining project. The firm's cost of capital
is 12 percent and the project is expected to have an initial after-tax cost of $5,000,000. Furthermore, the
project is expected to provide after-tax operating cash flows of $2,500,000 in year 1, $2,300,000 in year 2,
$2,200,000 in year 3, and ($1,300,000) in year 4.
(a) Calculate the project's NPV.
(b) Calculate the project's IRR.
(c) Should the firm make the investment?

ANSWER :

a.
Year Cash Flow PV
$ (5,000,000)
1 $ 2,500,000 $ 2,232,142.86
2 $ 2,300,000 $ 1,833,545.92
3 $ 2,200,000 $ 1,565,916.55
4 $ (1,300,000) $ (826,173.50)
NPV $ (194,568.18)

b. IRR = 9%

c. No, Because the NPV is below zero & the IRR is Below the cost of capital

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