Microsoft Word - ASSINGMENT 5 - Business Finance
FIN2221-ASSIGNMENT 5
1. What is the payback period for the set of cash flows given below?
Year Cash Flow
0 $ - 6,400
1 1,600
2 1,900
3 2,300
4 1,400
2. An investment project has annual cash inflows of $4,200, $5,300, 6,100 and $7,400 and a
discount rate of 14 percent. What is the discounted payback period for these cash flows if the
initial cost is $7,000? What is the discounted payback period for these cash flows if the initial
cost is $10,000? What is the discounted payback period for these cash flows if the initial cost is
$13,000? Do not round intermediate calculations and round your final answer to 2 decimal
places.
3. You are trying to determine whether to expand your business by building a new manufacturing
plane. The plant has an installation cost of $15 million, which will be depreciated straight-line to
zero over its four-year life. If the plant has projected net income of $1,938,200, $2,201,600,
$1,876,000 and $1,329,500 over these four years, what is the project’s average accounting
eturn (AAR)? Round your answer to 2 decimal places.
4. A frim evaluates all of its projects by applying the IRR rule. A project under consideration has
the following cash flows:
Year Cash Flow
0 $ -34,000
1 16,000
2 18,000
3 15,000
If the required return is 16 percent, what is the IRR for this project? Should the firm accept the
project? Explain. Round your answer to 2 decimal places.
5. A frim evaluates all of its projects by applying the NPV rule. A project under consideration has
the following cash flows:
Year Cash Flow
0 $ -34,000
XXXXXXXXXX,000
XXXXXXXXXX,000
XXXXXXXXXX,000
If the required return is 12 percent, what is the NPV for this project? Should the firm accept the
project? Explain. What is the NPV for this project if the required return is 35 percent? Should
the firm accept the project? Explain. Round your answer to 2 decimal places.