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McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 9 – Index of Sample
Problems
• Slide # 02 - 04 Net present value
• Slide # 05 - 06 Payback
• Slide # 07 - 08 Discounted payback
• Slide # 09 - 10 Average accounting return
• Slide # 11 - 12 Internal rate of return
• Slide # 13 - 16 Crossover point
• Slide # 17 - 19 Profitability index
• Slide # 20 - 22 Mutually exclusive projects
• Slide # 23 - 24 Multiple independent projects
2: Net present value
What is the net present value of this project if the required rate of
return is 12%?
CF0 = -$24,000
CO1 = $ 8,000 FO1 = 1
CO2 = $ 9,800 FO2 = 1
CO3 = $ 7,600 FO3 = 1
CO4 = $ 6,900 FO4 = 1
I = 12%
NPV CPT
$749.96
5: Payback
CF0 = -$48,500
CO1 = $ 9,800 FO1 =1
CO2 = $12,200 FO2 =1
CO3 = $12,850 FO3 =1
CO4 = $13,200 FO4 =1
CO5 = $13,600 FO5 =1
IRR CPT
8.14%
13: Crossover point
You are considering two projects with the following cash flows:
Year A B A-B
0 -$32,000 -$30,000 -$2,000
1 $12,000 $11,500 $ 500
2 $17,600 $16,700 $ 900
3 $20,900 $19,200 $1,700
CF0 = -$2,000
CO1 = $ 500 FO1 = 1
CO2 = $ 900 FO2 = 1
CO3 = $1,700 FO3 = 1
IRR CPT
20.6682% or 20.67%
15: Crossover point
Year A Year B
0 -$32,000 0 -$30,000
1 $12,000 1 $11,500
2 $17,600 2 $16,700
3 $20,900 3 $19,200
Year A Year B
0 -$32,000 0 -$30,000
1 $12,000 1 $11,500
2 $17,600 2 $16,700
3 $20,900 3 $19,200
The project you are considering has cash inflows of $4,800, $6,400
and $8,200 over the three year life of the project. The initial cash
requirement is $13,600.
CF0 = $ 0
CO1 = $4,800 FO1 = 1
CO2 = $6,400 FO2 = 1
CO3 = $8,200 FO3 = 1
I = 9%
NPV CPT
$16,122.33
$16,122.33
PI 1.19
$13,600
20: Mutually exclusive projects
You are considering two mutually exclusive projects which have the
following cash flows:
Year Project A Project B
0 -$48,000 -$50,000
1 $16,000 $21,000
2 $20,400 $21,000
3 $25,700 $28,000
Project A:
Project B:
CF0 = -$48,000
CO1 = $16,000 FO1 = 1 CF0 = -$50,000
CO2 = $20,400 FO2 = 1
CO1 = $21,000 FO1 = 2
CO3 = $25,700 FO3 = 1
CO2 = $28,000 FO2 = 1
I = 11%
NPV CPT
$1,763.13 I = 11%
NPV CPT
$6,436.35
23: Multiple independent projects
A B C D
Given that the projects are independent, your best choice, given
the information provided, is to select the projects with the highest
profitability index (PI) values. Thus, you should select projects A
and B as they return more per dollar spent.
Chapter 9
• End of Chapter 9
McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.