1. An investment project has annual cash inflows of $4,300, $4,000, $5,200, and $4,400, and a discount rate of 13 percent.
 
What is the discounted payback period for these cash flows if the initial cost is $5,800? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
 
  Discounted payback period   years 

 
 
What is the discounted payback period for these cash flows if the initial cost is $7,900? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
 
  Discounted payback  period   years 

What is the discounted payback period for these cash flows if the initial cost is $10,900? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
 
  Discounted payback period   years 

2. Stone Sour, Inc., has a project with the following cash flows:
  
Year Cash Flow
0 –$ 27,900 
1   11,900 
2   14,900 
3   10,900 
________________________________________
 
The required return is 18 percent. What is the IRR for this project? (Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16))

  IRR   %

3. Bill plans to open a self-serve grooming center in a storefront. The grooming equipment will cost $480,000, to be paid immediately. Bill expects aftertax cash inflows of $103,000 annually for eight years, after which he plans to scrap the equipment and retire to the beaches of Nevis. The first cash inflow occurs at the end of the first year. Assume the required return is 13 percent.
 
What is the project’s PI? (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161))
 
  PI       

3. Consider the following cash flows on two mutually exclusive projects for the Bahamas Recreation Corporation (BRC). Both projects require an annual return of 17 percent.
 
Year Deepwater Fishing New Submarine Ride
0 −$ 1,000,000   −$ 1,950,000 
1   420,000     1,000,000 
2   550,000     850,000 
3   470,000     850,000 
________________________________________
 
a-1. Compute the IRR for both projects. (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))
 
  IRR
  Deepwater Fishing   % 

  Submarine Ride   % 

 
________________________________________

b-1. Calculate the incremental IRR for the cash flows. (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))
 
  Incremental IRR   %

 Answer: 17.15

c-1. Compute the NPV for both projects.(Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))
 
  NPV
  Deepwater Fishing $   

  Submarine Ride $   

________________________________________

4. The Robb Computer Corporation is trying to choose between the following two mutually exclusive design projects:
Year Cash Flow (I)   Cash Flow (II)
0 –$ 54,000     –$ 19,000 
1   41,000       10,200 
2   41,000       10,200 
3   41,000       10,200 
________________________________________
 
  
a-1. If the required return is 11 percent, what is the profitability index for each project? (Do not round intermediate calculations. Round your answers to 3 decimal places. (e.g., 32.161))
 
  Profitability Index
  Project I   

  Project II   

________________________________________

b-1. What is the NPV for each project? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))
 
  NPV
  Project I $   

  Project II $   

________________________________________

5. Mario Brothers, a game manufacturer, has a new idea for an adventure game. It can market the game either as a traditional board game or as an interactive DVD, but not both. Consider the following cash flows of the two mutually exclusive projects for Mario Brothers. Assume the discount rate for Mario Brothers is 10 percent.

  Year Board Game DVD
0 –$ 1,600    –$ 3,500 
1   770     2,150 
2   1,350     1,650 
3   290     1,200 
________________________________________
  a. What is the payback period for each project? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))
 
  Payback period
  Board game   

  DVD   

________________________________________

b. What is the NPV for each project? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))
 
    NPV
  Board game $   

  DVD $   

________________________________________

c. What is the IRR for each project? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))
 
  IRR
  Board game   % 

  DVD   % 

________________________________________

d. What is the incremental IRR? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
 
  Incremental IRR   % 

6. Consider the following cash flows of two mutually exclusive projects for Tokyo Rubber Company. Assume the discount rate for Tokyo Rubber Company is 8 percent.

Year Dry Prepreg Solvent Prepreg
0 –$ 1,840,000   –$ 820,000 
1   1,114,000     445,000 
2   928,000     740,000 
3   764,000     418,000 
________________________________________
 

a. What is the payback period for both projects? (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))
   
  Payback period
  Dry Prepeg   years 

  Solvent Prepeg   years 

________________________________________

 
b. What is the NPV for both projects? (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))
   
  NPV
  Dry Prepeg $   

  Solvent Prepeg $   

_______________________________________
   

c. What is the IRR for both projects? (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))
    
  IRR
  Dry Prepeg   % 

  Solvent Prepeg   % 

________________________________________

d. Calculate the incremental IRR for the cash flows. (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))
 
  Incremental IRR   %

7. Consider two mutually exclusive new product launch projects that Nagano Golf is considering. Assume the discount rate for Nagano Golf is 13 percent. (Do not round intermediate calculations. Round your “PI” answers to 3 decimal places (e.g., 32.161) and other answers to 2 decimal places. (e.g., 32.16))
   
 Project A: Nagano NP-30.
   Professional clubs that will take an initial investment of $640,000 at time 0.
   Next five years (Years 1–5) of sales will generate a consistent cash flow of $275,000 per year.
   Introduction of new product at Year 6 will terminate further cash flows from this project.
Project B: Nagano NX-20.
   High-end amateur clubs that will take an initial investment of $650,000 at Time 0.
   Cash flow at Year 1 is $190,000. In each subsequent year cash flow will grow at 10 percent per year.
   Introduction of new product at Year 6 will terminate further cash flows from this project.
   
 
Year NP-30 NX-20
0 –$ 640,000   –$ 650,000 
1   275,000     190,000 
2   275,000     209,000 
3   275,000     229,900 
4   275,000     252,890 
5   275,000     278,179 
________________________________________
  
 
Complete the following table:
 
 
  NX-30   NX-20
  Payback 
years   
years
  IRR 
%   
%
  PI 
    
 
  NPV $ 
    $ 
 
________________________________________