134 Assignment 2 Answer
C4-q28 A since the first payment begins at year 3,So t=2,t+1=3.and the present value of the annuity =$5000/8%*[1-(1/1+8%)^(25-2)]
= $51,855.29
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C5-q11 A:(1)IRR(DF):$-750000+$310000/(1+r)+$430000(1+r)^2+
$330000(1+r)^3=0
r=19.8253%
IRR(SR)=$-2100000+$1200000/(1+r)+$760000(1+r)^2+$850000/
(1+r)^3=0 r=17.3641% since r1>r2 project deepwater fishing should be chosen.
(2)incremental cash flow: initial investment: -$1350000 year1:$890000 year2:$330000 year3: $520000
IRR : $-1350000+$890000/(1+r)+$330000/(1+r)^2+$520000/(1+r)^3=0 r=15.76% since 15.76%>14% , project submarine ride should be chosen.
(3)NPV(df)=$-750000+$310000/(1+14%)+$430000/(1+14%)^2+
$330000/(1+14)^3
=$75446.27
NPV(sr)=-$2100000+$1200000/(1+14%)+$760000/(1+14)^2+
$850000/(1+14)^3
=$111571.28 sinceNPV(sr)>NPV(df) , project submarine ride project should be chosen. !
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C7-q4 A:financial break-even point: NPV of total revenues =NPV of total costs
Ct+1/12%*[1-1/(1+12%)^5]=$250000
Ct+1=$69352.43
Break-even point=[$69352.43+$360000*(1-34%)-$50000*34%]/[($25-$6)]
*(1-34%)=23122.20units=23123 units
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C8-q5 A:PV=€84/7.6%{1-[1/(1+7.6%)]^15}+€1000/(1+7.6%)^15
= €736.90+€333.29=€1070.19
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C9-q14 A: The third year’s dividend: $2.4*(1+25%）^3=$4.6875
The first three year’s present value is $2.4*1.25/(.12-.25)*[1(1.25/1.12)^3]=$9
The dividend from the fourth year to infinity is $4.6875*(1+7%),
4.6875*(1+7%)^2……..
The value in year 3 from fourth year value to infinity is $5.0156/(.12-.
07)=$100.312
The present value of forth year to infinity is $100.312/(1.12)^3=$71.40
So the present value of the stock is $71.40+$9=$80.40
= $51,855.29
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C5-q11 A:(1)IRR(DF):$-750000+$310000/(1+r)+$430000(1+r)^2+
$330000(1+r)^3=0
r=19.8253%
IRR(SR)=$-2100000+$1200000/(1+r)+$760000(1+r)^2+$850000/
(1+r)^3=0 r=17.3641% since r1>r2 project deepwater fishing should be chosen.
(2)incremental cash flow: initial investment: -$1350000 year1:$890000 year2:$330000 year3: $520000
IRR : $-1350000+$890000/(1+r)+$330000/(1+r)^2+$520000/(1+r)^3=0 r=15.76% since 15.76%>14% , project submarine ride should be chosen.
(3)NPV(df)=$-750000+$310000/(1+14%)+$430000/(1+14%)^2+
$330000/(1+14)^3
=$75446.27
NPV(sr)=-$2100000+$1200000/(1+14%)+$760000/(1+14)^2+
$850000/(1+14)^3
=$111571.28 sinceNPV(sr)>NPV(df) , project submarine ride project should be chosen. !
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!
C7-q4 A:financial break-even point: NPV of total revenues =NPV of total costs
Ct+1/12%*[1-1/(1+12%)^5]=$250000
Ct+1=$69352.43
Break-even point=[$69352.43+$360000*(1-34%)-$50000*34%]/[($25-$6)]
*(1-34%)=23122.20units=23123 units
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!
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C8-q5 A:PV=€84/7.6%{1-[1/(1+7.6%)]^15}+€1000/(1+7.6%)^15
= €736.90+€333.29=€1070.19
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!
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C9-q14 A: The third year’s dividend: $2.4*(1+25%）^3=$4.6875
The first three year’s present value is $2.4*1.25/(.12-.25)*[1(1.25/1.12)^3]=$9
The dividend from the fourth year to infinity is $4.6875*(1+7%),
4.6875*(1+7%)^2……..
The value in year 3 from fourth year value to infinity is $5.0156/(.12-.
07)=$100.312
The present value of forth year to infinity is $100.312/(1.12)^3=$71.40
So the present value of the stock is $71.40+$9=$80.40