Homework Answers
1
| Project | |||||||||
| Discount rate | 0.08 | ||||||||
| Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Cash flow stream | -7700 | 1930 | 1930 | 1930 | 1930 | 1930 | 1930 | 1930 | 1930 |
| Discounting factor | 1 | 1.08 | 1.1664 | 1.259712 | 1.360489 | 1.469328 | 1.586874 | 1.713824 | 1.85093 |
| Discounted cash flows project | -7700 | 1787.037 | 1654.664 | 1532.096 | 1418.6076 | 1313.526 | 1216.227 | 1126.136 | 1042.719 |
| NPV = Sum of discounted cash flows | |||||||||
| NPV Project = | 3391.01 | ||||||||
| Where | |||||||||
| Discounting factor = | (1 + discount rate)^(Corresponding period in years) | ||||||||
| Discounted Cashflow= | Cash flow stream/discounting factor | ||||||||
2
| Project | |||||||||
| Discount rate | 0.24 | ||||||||
| Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Cash flow stream | -7700 | 1930 | 1930 | 1930 | 1930 | 1930 | 1930 | 1930 | 1930 |
| Discounting factor | 1 | 1.24 | 1.5376 | 1.906624 | 2.3642138 | 2.931625 | 3.635215 | 4.507667 | 5.589507 |
| Discounted cash flows project | -7700 | 1556.452 | 1255.203 | 1012.26 | 816.33904 | 658.3379 | 530.9177 | 428.1594 | 345.2899 |
| NPV = Sum of discounted cash flows | |||||||||
| NPV Project = | -1097.04 | ||||||||
| Where | |||||||||
| Discounting factor = | (1 + discount rate)^(Corresponding period in years) | ||||||||
| Discounted Cashflow= | Cash flow stream/discounting factor | ||||||||
3
| Project | |||||||||
| IRR is the rate at which NPV =0 | |||||||||
| IRR | 0.187085395 | ||||||||
| Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Cash flow stream | -7700 | 1930 | 1930 | 1930 | 1930 | 1930 | 1930 | 1930 | 1930 |
| Discounting factor | 1 | 1.187085 | 1.409172 | 1.672807 | 1.985765 | 2.357273 | 2.798284 | 3.321802 | 3.943263 |
| Discounted cash flows project | -7700 | 1625.831 | 1369.599 | 1153.749 | 971.91763 | 818.7428 | 689.7084 | 581.01 | 489.4424 |
| NPV = Sum of discounted cash flows | |||||||||
| NPV Project = | 0.000162736 | ||||||||
| Where | |||||||||
| Discounting factor = | (1 + IRR)^(Corresponding period in years) | ||||||||
| Discounted Cashflow= | Cash flow stream/discounting factor | ||||||||
| IRR= | 18.71% | ||||||||
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