Financial HW

Financial HW. Problem 10-8 NPVs, IRRs, and MIRRs for Independent Projects Edelman Engineering is considering including two pieces of equipment, a truck and an overhead pulley system, in this year’s capital budget. The projects are independent. The cash outlay for the truck is $18,000, and that for the pulley system is $22,000. The firm’s cost of capital is 14%. After-tax cash flows, including depreciation, are as follows: Year      Truck      Pulley 1      $5,100         $7,500      2      5,100            7,500      3      5,100            7,500      4      5,100            7,500      5      5,100            7,500      a. Calculate NPV, IRR and MIRR of truck project.

b. Calculate NPV, IRR and MIRR of pulley project.  Round your answer to two decimal places. For example, if your answer is $345.667 enter as 345.67 and if your answer is .05718 or 5.718% enter as 5.72 in the answer box provided.

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Problem 10-13 (e)

Cummings Products Company is considering two mutually exclusive investments whose expected net cash flows are as follows: EXPECTED NET CASH FLOWS Year     Project A      Project B  0              -$280    -$430  1              -387      134  2              -193      134  3              -100      134  4               600      134  5               600      134  6               850      134  7              -180      134 What is the crossover rate? Round your answer to two decimal places. For example, if your answer is $345.667 enter as 345.67 and if your answer is .05718 or 5.718% enter as 5.72 in the answer box provided.

 

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Problem 10-16  Unequal Lives

Shao Airlines is considering two alternative planes. Plane A has an expected life of 5 years, will cost $100 million and will produce net cash flows of $30 million per year. Plane B has a life of 10 years, will cost $132 million and will produce net cash flows of $25 million per year. Shao plans to serve the route for only 10 years. Inflation in operating costs, airplane costs, and fares is expected to be zero, and the company’s cost of capital is 12%.

a. By how much would the value of the company increase if it accepted the better project (plane)? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places.

The value of the company would increase by $ million

b.  What is the equivalent annual annuity for each plane? Enter your answer in millions.      For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000.            Round your answers to two decimal places.

The equivalent annual annuity of Plane A and Plane B are $ million

$ million respectively.

Financial HW

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