Problems

(11-2) NPV C I Answer: a EASY

i. Anderson Systems is considering a project that has the following cash
flow and WACC data. What is the project's NPV? Note that if a
project's projected NPV is negative, it should be rejected.

WACC: 9.00%
Year 0 1 2 3
Cash flows -$1,000 $500 $500 $500

a. $265.65
b. $278.93
c. $292.88
d. $307.52
e. $322.90

(11-2) NPV C I Answer: c EASY

ii. Tuttle Enterprises is considering a project that has the following cash
flow and WACC data. What is the project's NPV? Note that if a
project's projected NPV is negative, it should be rejected.

WACC: 11.00%
Year 0 1 2 3 4
Cash flows -$1,000 $350 $350 $350 $350

a. $77.49
b. $81.56
c. $85.86
d. $90.15
e. $94.66

(11-2) NPV C I Answer: e EASY

iii. Harry's Inc. is considering a project that has the following cash flow
and WACC data. What is the project's NPV? Note that if a project's
projected NPV is negative, it should be rejected.

WACC: 10.25%
Year 0 1 2 3 4 5
Cash flows -$1,000 $300 $300 $300 $300 $300

a. $105.89
b. $111.47
c. $117.33
d. $123.51
e. $130.01
(11-3) IRR C I Answer: b EASY
iv. Simms Corp. is considering a project that has the following cash flow
data. What is the project's IRR? Note that a project's projected IRR
can be less than the WACC or negative, in both cases it will be
rejected.

Year 0 1 2 3
Cash flows -$1,000 $425 $425 $425

a. 12.55%
b. 13.21%
c. 13.87%
d. 14.56%
e. 15.29%

(11-3) IRR C I Answer: d EASY

v. Warr Company is considering a project that has the following cash flow
data. What is the project's IRR? Note that a project's projected IRR
can be less than the WACC or negative, in both cases it will be
rejected.

Year 0 1 2 3 4
Cash flows -$1,050 $400 $400 $400 $400

a. 14.05%
b. 15.61%
c. 17.34%
d. 19.27%
e. 21.20%

(11-3) IRR C I Answer: a EASY

vi. Thorley Inc. is considering a project that has the following cash flow
data. What is the project's IRR? Note that a project's projected IRR
can be less than the WACC or negative, in both cases it will be
rejected.

Year 0 1 2 3 4 5
Cash flows -$1,250 $325 $325 $325 $325 $325

a. 9.43%
b. 9.91%
c. 10.40%
d. 10.92%
e. 11.47%
(11-8) Payback C I Answer: c EASY
vii. Taggart Inc. is considering a project that has the following cash flow
data. What is the project's payback?

Year 0 1 2 3
Cash flows -$1,150 $500 $500 $500

a. 1.86 years
b. 2.07 years
c. 2.30 years
d. 2.53 years
e. 2.78 years

(11-8) Payback C I Answer: c EASY

viii. Resnick Inc. is considering a project that has the following cash flow
data. What is the project's payback?

Year 0 1 2 3
Cash flows -$350 $200 $200 $200

a. 1.42 years
b. 1.58 years
c. 1.75 years
d. 1.93 years
e. 2.12 years

(11-8) Payback C I Answer: c EASY

ix. Susmel Inc. is considering a project that has the following cash flow
data. What is the project's payback?

Year 0 1 2 3
Cash flows -$500 $150 $200 $300

a. 2.03 years
b. 2.25 years
c. 2.50 years
d. 2.75 years
e. 3.03 years

(11-8) Payback C I Answer: c EASY

x. Mansi Inc. is considering a project that has the following cash flow
data. What is the project's payback?

Year 0 1 2 3
Cash flows -$750 $300 $325 $350

a. 1.91 years
b. 2.12 years
c. 2.36 years
d. 2.59 years
e. 2.85 years
(11-2) NPV C I Answer: a EASY/MEDIUM
xi. Cornell Enterprises is considering a project that has the following cash
flow and WACC data. What is the project's NPV? Note that a project's
projected NPV can be negative, in which case it will be rejected.

WACC: 10.00%
Year 0 1 2 3
Cash flows -$1,050 $450 $460 $470

a. $92.37
b. $96.99
c. $101.84
d. $106.93
e. $112.28

(11-2) NPV C I Answer: c EASY/MEDIUM

xii. Warnock Inc. is considering a project that has the following cash flow
and WACC data. What is the project's NPV? Note that a project's
projected NPV can be negative, in which case it will be rejected.

WACC: 10.00%
Year 0 1 2 3
Cash flows -$950 $500 $400 $300

a. $54.62
b. $57.49
c. $60.52
d. $63.54
e. $66.72

(11-2) NPV C I Answer: e EASY/MEDIUM

xiii. Jazz World Inc. is considering a project that has the following cash
flow and WACC data. What is the project's NPV? Note that a project's
projected NPV can be negative, in which case it will be rejected.

WACC: 14.00%
Year 0 1 2 3 4
Cash flows -$1,200 $400 $425 $450 $475

a. $41.25
b. $45.84
c. $50.93
d. $56.59
e. $62.88
(11-2) NPV C I Answer: b EASY/MEDIUM
xiv. Barry Company is considering a project that has the following cash flow
and WACC data. What is the project's NPV? Note that a project's
projected NPV can be negative, in which case it will be rejected.

WACC: 12.00%
Year 0 1 2 3 4 5
Cash flows -$1,100 $400 $390 $380 $370 $360

a. $250.15
b. $277.94
c. $305.73
d. $336.31
e. $369.94

(11-3) IRR C I Answer: d EASY/MEDIUM

xv. Datta Computer Systems is considering a project that has the following
cash flow data. What is the project's IRR? Note that a project's
projected IRR can be less than the WACC (and even negative), in which
case it will be rejected.

Year 0 1 2 3
Cash flows -$1,100 $450 $470 $490

a. 9.70%
b. 10.78%
c. 11.98%
d. 13.31%
e. 14.64%

(11-3) IRR C I Answer: a EASY/MEDIUM

xvi. Simkins Renovations Inc. is considering a project that has the following
cash flow data. What is the project's IRR? Note that a project's
projected IRR can be less than the WACC (and even negative), in which
case it will be rejected.

Year 0 1 2 3 4
Cash flows -$850 $300 $290 $280 $270

a. 13.13%
b. 14.44%
c. 15.89%
d. 17.48%
e. 19.22%
(11-3) IRR C I Answer: c EASY/MEDIUM
xvii. Maxwell Feed & Seed is considering a project that has the following cash
flow data. What is the project's IRR? Note that a project's projected
IRR can be less than the WACC (and even negative), in which case it will
be rejected.

Year 0 1 2 3 4 5
Cash flows -$9,500 $2,000 $2,025 $2,050 $2,075 $2,100

a. 2.08%
b. 2.31%
c. 2.57%
d. 2.82%
e. 3.10%
i. (11-2) NPV C I Answer: a EASY

WACC: 9.00%
Year 0 1 2 3
Cash flows -$1,000 $500 $500 $500

NPV = $265.65

ii. (11-2) NPV C I Answer: c EASY

WACC: 11.00%
Year 0 1 2 3 4
Cash flows -$1,000 $350 $350 $350 $350

NPV = $85.86

iii. (11-2) NPV C I Answer: e EASY

WACC: 10.25%
Year 0 1 2 3 4 5
Cash flows -$1,000 $300 $300 $300 $300 $300

NPV = $130.01

iv. (11-3) IRR C I Answer: b EASY

Year 0 1 2 3
Cash flows -$1,000 $425 $425 $425

IRR = 13.21%

v. (11-3) IRR C I Answer: d EASY

Year 0 1 2 3 4
Cash flows -$1,050 $400 $400 $400 $400

IRR = 19.27%

vi. (11-3) IRR C I Answer: a EASY

Year 0 1 2 3 4 5
Cash flows -$1,250 $325 $325 $325 $325 $325

IRR = 9.43%

vii. (11-8) Payback C I Answer: c EASY

Year 0 1 2 3
Cash flows -$1,150 $500 $500 $500
Cumulative CF -$1,150 -$650 -$150 $350
Payback = 2.30 - - - 2.30

Payback = last year before cum CF turns positive + abs. val. last neg. cum CF/CF in payback year.

viii. (11-8) Payback C I Answer: c EASY

Year 0 1 2 3
Cash flows -$350 $200 $200 $200
Cumulative CF -$350 -$150 $50 $250
 Payback = 1.75 - - 1.75 -

Payback = last year before cum CF turns positive + abs. val. last neg. cum CF/CF in payback year.

ix. (11-8) Payback C I Answer: c EASY

Year 0 1 2 3
Cash flows -$500 $150 $200 $300
Cumulative CF -$500 -$350 -$150 $150
Payback = 2.50 - - - 2.50

Payback = last year before cum CF turns positive + abs. val. last neg. cum CF/CF in payback year.
x. (11-8) Payback C I Answer: c EASY

Year 0 1 2 3
Cash flows -$750 $300 $325 $350
Cumulative CF -$750 -$450 -$125 $225
Payback = 2.36 - - - 2.36

Payback = last year before cum CF turns positive + abs. val. last neg. cum CF/CF in payback year.

xi. (11-2) NPV C I Answer: a EASY/MEDIUM

WACC: 10.00%
Year 0 1 2 3
Cash flows -$1,050 $450 $460 $470

NPV =$92.37

xii. (11-2) NPV C I Answer: c EASY/MEDIUM

WACC: 10.00%
Year 0 1 2 3
Cash flows -$950 $500 $400 $300

NPV = $60.52

xiii. (11-2) NPV C I Answer: e EASY/MEDIUM

WACC: 14.00%
Year 0 1 2 3 4
Cash flows -$1,200 $400 $425 $450 $475

NPV = $62.88

xiv. (11-2) NPV C I Answer: b EASY/MEDIUM

WACC: 12.00%
Year 0 1 2 3 4 5
Cash flows -$1,100 $400 $390 $380 $370 $360

NPV = $277.94

xv. (11-3) IRR C I Answer: d EASY/MEDIUM

Year 0 1 2 3
Cash flows -$1,100 $450 $470 $490

IRR = 13.31%
xvi. (11-3) IRR C I Answer: a EASY/MEDIUM

Year 0 1 2 3 4
Cash flows -$850 $300 $290 $280 $270

IRR = 13.13%

xvii. (11-3) IRR C I Answer: c EASY/MEDIUM

Year 0 1 2 3 4 5
Cash flows -$9,500 $2,000 $2,025 $2,050 $2,075 $2,100

IRR = 2.57%