chapter 6 investment decision rules

952741 張芥華 982733 邱怡甯

971921 王群婷 982619 潘維揚

971925 楊智惟

(A) 2.5 years

(B) 2.0 years

(C) 2.2 years

(D) 2.4 years

ProjectYear 0

Cash FlowYear 1

Cash FlowYear 2

Cash FlowYear 3

Cash FlowYear 4

Cash FlowDiscount

RateA -100 40 50 60 N/A .15B -73 30 30 30 30 .15

ProjectYear 0

Cash FlowYear 1

Cash FlowYear 2

Cash FlowYear 3

Cash FlowYear 4

Cash FlowDiscount

Rate

A -100 40 50 60 N/A .15

B -73 30 30 30 30 .15

Answer: (D)

73/30=2.43

(A) 7.7%

(B) 21.6%

(C) 23.3%

(D) 42.9%

ProjectYear 0

Cash FlowYear 1

Cash FlowYear 2

Cash FlowYear 3

Cash FlowYear 4

Cash FlowDiscount

RateA -100 40 50 60 N/A .15B -73 30 30 30 30 .15

ProjectYear 0

Cash FlowYear 1

Cash FlowYear 2

Cash FlowYear 3

Cash FlowYear 4

Cash FlowDiscount

RateA -100 40 50 60 N/A .15

B -73 30 30 30 30 .15

Answer: (B)

(A) 21.6%

(B) 23.3%

(C) 42.9%

(D) 7.7%

ProjectYear 0

Cash FlowYear 1

Cash FlowYear 2

Cash FlowYear 3

Cash FlowYear 4

Cash FlowDiscount

RateA -100 40 50 60 N/A .15B -73 30 30 30 30 .15

ProjectYear 0

Cash FlowYear 1

Cash FlowYear 2

Cash FlowYear 3

Cash FlowYear 4

Cash FlowDiscount

RateA -100 40 50 60 N/A .15

B -73 30 30 30 30 .15

Answer: (B)

(A) You should accept project A since its IRR > 15%

(B) You should reject project B since its NPV > 0

(C) Your should accept project A since its NPV < 0

(D) You should accept project B since its IRR < 15%

ProjectYear 0

Cash FlowYear 1

Cash FlowYear 2

Cash FlowYear 3

Cash FlowYear 4

Cash FlowDiscount

RateA -100 40 50 60 N/A .15B -73 30 30 30 30 .15

Answer: (A)

(B) You can accept project B since NPV>0(C) You can accept project A since NPV>0(D) You should deny project B since its IRR >15%

You are considering purchasing a new automated forklift system for your firm's warehouse. The automated forklift will cost $500,000 and generate cash flows of $125,000 per year. The forklift will depreciate evenly over the five years, at which point it must be replaced. The cost of capital is 8% per year. Based upon the EVA investment rule, should you invest in the automated forklift?

Answer: NO

0 1 32 54

-500 250 250 250250 250

Because the EVA is negative, we will not take the project.

0 1 2 3 4 5

EVA

CapitalCash flow

Capital changeDepreciation

EVA

500 400125(40)

(100)-15

300125(32)

(100)-7

200125(24)

(100)1

100125(16)

(100)9

0125(8)

(100)17

PV of EVA