Adequate information: The initial cost = I Required return = r Annual cash flow = C Number of years = N. To compute: The annual cash flow for which the payback period is equal to the life of the project. Introduction: The payback period is the minimum period of time in which an initial investment of the project is recovered from the net cash inflows that it generates.

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Answer 1

Question

Chapter 5, Problem 9QAP

a.

Summary Introduction

Adequate information:

The initial cost = I

Required return = r

Annual cash flow = C

Number of years = N.

To compute: The annual cash flow for which the payback period is equal to the life of the project.

Introduction: The payback period is the minimum period of time in which an initial investment of the project is recovered from the net cash inflows that it generates.

b.

Summary Introduction

Adequate information:

Initial cost = I

Required return = r

Annual cash flow = C

Number of years = N.

To compute: The value at which the company will have a positive NPV.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

c.

Summary Introduction

Adequate information:

Initial cost = I

Required return = r

Annual cash flow = C

Number of years = N.

To compute: The annual cash flow when the benefit-cost ratio is 2.

Introduction: The benefit-cost ratio or the profitability index is defined as the ratio between the present worth of future cash inflows of a particular investment and the initial cost of the investment.

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You have determined the profitability of a planned project by finding the present value of all the cash flows from that project. Which of the following would cause the project to look more appealing in terms of the present value of those cash flows? A. The discount rate increases. B. The cash flows are extended over a longer period of time, but the total amount of the cash flows remains the same. C. The discount rate decreases. D. Answers B and C above. E. Answers A and B above.

Which of the following statements is true? The internal rate of return is the rate of return of an investment project over its useful life. When the net cash inflow is the same every year for a project after the initial investment, the internal rate of return of a project can be determined by dividing the initial investment required in the project by the annual net cash inflow. This computation yields a factor that can be looked up in a table of present values of annuities to find the internal rate of return. Multiple Choice Only statement I is true. Only statement II is true. Both statements are true.

Calculate the payback period, net present value, and internal rate of return for Project A. Assume a discount rate of 10%. Should the firm accept or reject Project A? Explain. If Project A and Project B are mutually exclusive, which is the better choice? Explain. What are “non-conventional” cash flows? What issues arise when evaluating projects with “non-conventional” cash flows? Project A Project B Year Cash Flow Year Cash Flow 0 -$100,000 0 -$1 1 $70,000 1 $0 2 $0 2 $0 3 $50,000 3 $10

Answer 2

Question

Chapter 5, Problem 9QAP

a.

Summary Introduction

Adequate information:

The initial cost = I

Required return = r

Annual cash flow = C

Number of years = N.

To compute: The annual cash flow for which the payback period is equal to the life of the project.

Introduction: The payback period is the minimum period of time in which an initial investment of the project is recovered from the net cash inflows that it generates.

b.

Summary Introduction

Adequate information:

Initial cost = I

Required return = r

Annual cash flow = C

Number of years = N.

To compute: The value at which the company will have a positive NPV.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

c.

Summary Introduction

Adequate information:

Initial cost = I

Required return = r

Annual cash flow = C

Number of years = N.

To compute: The annual cash flow when the benefit-cost ratio is 2.

Introduction: The benefit-cost ratio or the profitability index is defined as the ratio between the present worth of future cash inflows of a particular investment and the initial cost of the investment.

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Answer 3

Question

Chapter 5, Problem 9QAP

a.

Summary Introduction

Adequate information:

The initial cost = I

Required return = r

Annual cash flow = C

Number of years = N.

To compute: The annual cash flow for which the payback period is equal to the life of the project.

Introduction: The payback period is the minimum period of time in which an initial investment of the project is recovered from the net cash inflows that it generates.

b.

Summary Introduction

Adequate information:

Initial cost = I

Required return = r

Annual cash flow = C

Number of years = N.

To compute: The value at which the company will have a positive NPV.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

c.

Summary Introduction

Adequate information:

Initial cost = I

Required return = r

Annual cash flow = C

Number of years = N.

To compute: The annual cash flow when the benefit-cost ratio is 2.

Introduction: The benefit-cost ratio or the profitability index is defined as the ratio between the present worth of future cash inflows of a particular investment and the initial cost of the investment.

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Answer 4

Question

Chapter 5, Problem 9QAP

a.

Summary Introduction

Adequate information:

The initial cost = I

Required return = r

Annual cash flow = C

Number of years = N.

To compute: The annual cash flow for which the payback period is equal to the life of the project.

Introduction: The payback period is the minimum period of time in which an initial investment of the project is recovered from the net cash inflows that it generates.

b.

Summary Introduction

Adequate information:

Initial cost = I

Required return = r

Annual cash flow = C

Number of years = N.

To compute: The value at which the company will have a positive NPV.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

c.

Summary Introduction

Adequate information:

Initial cost = I

Required return = r

Annual cash flow = C

Number of years = N.

To compute: The annual cash flow when the benefit-cost ratio is 2.

Introduction: The benefit-cost ratio or the profitability index is defined as the ratio between the present worth of future cash inflows of a particular investment and the initial cost of the investment.

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Answer 5

Chapter 5, Problem 9QAP

a.

Summary Introduction

Adequate information:

The initial cost = I

Required return = r

Annual cash flow = C

Number of years = N.

To compute: The annual cash flow for which the payback period is equal to the life of the project.

Introduction: The payback period is the minimum period of time in which an initial investment of the project is recovered from the net cash inflows that it generates.

b.

Summary Introduction

Adequate information:

Initial cost = I

Required return = r

Annual cash flow = C

Number of years = N.

To compute: The value at which the company will have a positive NPV.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

c.

Summary Introduction

Adequate information:

Initial cost = I

Required return = r

Annual cash flow = C

Number of years = N.

To compute: The annual cash flow when the benefit-cost ratio is 2.

Introduction: The benefit-cost ratio or the profitability index is defined as the ratio between the present worth of future cash inflows of a particular investment and the initial cost of the investment.

Answer 6

Chapter 5, Problem 9QAP

a.

Summary Introduction

Adequate information:

The initial cost = I

Required return = r

Annual cash flow = C

Number of years = N.

To compute: The annual cash flow for which the payback period is equal to the life of the project.

Introduction: The payback period is the minimum period of time in which an initial investment of the project is recovered from the net cash inflows that it generates.

Answer 7

Chapter 5, Problem 9QAP

a.

Summary Introduction

Adequate information:

The initial cost = I

Required return = r

Annual cash flow = C

Number of years = N.

To compute: The annual cash flow for which the payback period is equal to the life of the project.

Introduction: The payback period is the minimum period of time in which an initial investment of the project is recovered from the net cash inflows that it generates.

Answer 8

b.

Summary Introduction

Adequate information:

Initial cost = I

Required return = r

Annual cash flow = C

Number of years = N.

To compute: The value at which the company will have a positive NPV.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

Answer 9

b.

Summary Introduction

Adequate information:

Initial cost = I

Required return = r

Annual cash flow = C

Number of years = N.

To compute: The value at which the company will have a positive NPV.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

Answer 10

c.

Summary Introduction

Adequate information:

Initial cost = I

Required return = r

Annual cash flow = C

Number of years = N.

To compute: The annual cash flow when the benefit-cost ratio is 2.

Introduction: The benefit-cost ratio or the profitability index is defined as the ratio between the present worth of future cash inflows of a particular investment and the initial cost of the investment.

Answer 11

c.

Summary Introduction

Adequate information:

Initial cost = I

Required return = r

Annual cash flow = C

Number of years = N.

To compute: The annual cash flow when the benefit-cost ratio is 2.

Introduction: The benefit-cost ratio or the profitability index is defined as the ratio between the present worth of future cash inflows of a particular investment and the initial cost of the investment.

Answer 12

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Answer 13

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Answer 14

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Answer 15

Ch. 5 - Payback Period and Net Present Value If a project...Ch. 5 - Net Present Value Suppose a project has...Ch. 5 - Comparing Investment Criteria Define each of the...Ch. 5 - Payback and Internal Rate of Return A project has...Ch. 5 - Prob. 5CQ Ch. 5 - Capital Budgeting Problems What are some of the...Ch. 5 - Prob. 7CQ Ch. 5 - Prob. 8CQ Ch. 5 - Net Present Value versus Profitability Index...Ch. 5 - Internal Rate of Return Projects A and B have the...

Solution Summary: The author explains how to compute the value at which the company will have a positive NPV.

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