BUSN379 Homework Week 4

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BUSN379 Homework Week 4
Calculating Payback. Global Toys Inc., imposes a payback cutoff of three years for its international…

 

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BUSN379 Homework Week 4

BUSN379 Homework Week 4

A+

Chapter 8: 3, 4, 5, and 6

Instructions:

  • Please submit your homework using this template.
  • If you used excel for your calculations, please fill in your results in this template and submit along with your Excel sheet.
  • If you used a financial calculator, provide your inputs.
  • If you used an online calculator, provide a snapshot at all possible.
  • If you used a formula, write down your step-by-step calculations.
  • Please complete all items highlighted in yellow.

Note: you will not receive credit for items without calculations

Chapter 8

  • Please submit your homework using this template.
  • If you used excel for your calculations, please fill in your results in this template and submit along with your Excel sheet.
  • If you used a financial calculator, provide your inputs.
  • If you used an online calculator, provide a snapshot at all possible.
  • If you used a formula, write down your step-by-step calculations.
  • Please complete all items highlighted in yellow.

Exercise #3:

3.Calculating Payback. Global Toys Inc., imposes a payback cutoff of three years for its international investment projects. If the company has the following two projects available, should it accept either of them?

 

YearCash Flow (A)Cash Flow (B)
0−$55,000−$ 95,000
1    19,000     18,000
2    27,000     26,000
3    24,000     28,000
4      9,000   260,000

Exercise #4

Calculating AAR. You’re trying to determine whether or not to expand your business by building a new manufacturing plant. The plant has an installation cost of $14 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected net income of $1,253,000, $1,935,000, $1,738,000, and $1,310,000 over these four years, what is the project’s average accounting return (AAR)?

Exercise #5

Calculating IRR. A firm evaluates all of its projects by applying the IRR rule. If the required return is 11 percent, should the firm accept the following project?

 

YearCash Flow
0−$153,000
1      78,000
2      67,000
3      49,000

Exercise #6

Calculating NPV. For the cash flows in the previous problem, suppose the firm uses the NPV decision rule. At a required return of 9 percent, should the firm accept this project? What if the required return was 21 percent?

There are several ways to calculate the NPV:

  1. Using Excel (function NPV). If you use Excel, compute the NPV of all cash flows from years 1 to 3. Then subtract the initial investment. Do not include the initial investment (Year 0) cash flow under the formula NPV. Your result will not be correct.
  2. Using trial and error as provided in Example 8.1, Page 242
  3. Using your financial calculator
  4. Using an online calculator (recommended process): http://zenwealth.com/businessfinanceonline/CB/CBCalculator.html
    The “Cost of Capital” is your “required return”. Make sure the initial investment is negative. You need to add a minus sign (-) in front of it….