SA HW6B

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Finance

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Feb 20, 2024

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docx

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HW6B (NPV) Question 1 Find the net present value (NPV) for the following series of future cash flows, assuming the company’s cost of capital is 11.27 percent. The initial outlay is $511,874. Year 1: 180,696 Year 2: 150,117 Year 3: 198,752 Year 4: 147,371 Year 5: 169,563 Round the answer to two decimal places. Your Answer: [ 111579.77 Solution: Step 1: Calculate present value of cash flows received in years 1-5 using Excel function NPV. (Formulas - Financial - NPV) Enter: Rate 11.27% Value1 180696 Value 2 150117 Value 3 198752 Value 4 147371 Value 5 169563 =NPV(11.27%,180696,150117, 198752,147371,169563) = $623,463.77 Step 2: Calculate NPV of the project: $623,463.77 - $511,874 = $111,589.77 All together: =NPV(11.27%,180696,150117, 198752,147371,169563) - 511,874 = $111,589.77
HW6B (NPV) Question 2 Tall Trees, Inc. is using the net present value (NPV) when evaluating projects. You have to find the NPV for the company’s project, assuming the company’s cost of capital is 14.90 percent. The initial outlay for the project is $355,970. The project will produce the following after-tax cash inflows of Year 1: 170,583 Year 2: 11,468 Year 3: 74,099 Year 4: 199,276 Round the answer to two decimal places. Your Answer: -35638.82 Answer Solution:
HW6B (NPV) Step 1: Calculate present value of cash flows received in years 1-4 using Excel function NPV. (Formulas - Financial - NPV) Enter: Rate 14.90% Value1 170583 Value 2 11468 Value 3 74099 Value 4 199276 =NPV(14.9%,170583,11468, 74099,199276) = $320,331.18 Step 2: Calculate NPV of the project: $320,331.18 - $355,970 = -$35,638.82 All together: =NPV(14.9%,170583,11468,74099,199276) - 355970 = -$35,638.82 Question 3 Green Landscaping, Inc. is using net present value (NPV) when evaluating projects. Green Landscaping’s cost of capital is 8.11 percent. What is the NPV of a project if the initial costs are $1,568,909 and the project life is estimated as 5 years? The project will produce the same after-tax cash inflows of $581,897 per year at the end of the year. Round the answer to two decimal places. Your Answer: 747716.74 Answer Solution:
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