FINANCE- FIN 534 – Homework Set #4

FIN 534 – Homework Set #4Directions: Answer the following questions on a separate document. Explain how you reached the answeror show your work if a mathematical calculation is needed, or both. Submit your assignment using theassignment link in the course shell. This homework assignment is worth 100 points.Use the following information for Questions 1 through 3:Assume you are presented with the following mutually exclusive investments whose expected net cashflows are as follows:EXPECTED NET CASH FLOWS:YearProject AProject B0−$400−$6501−5282102−2192103−15021041,100210582021069902107−3252101. (a) What is each project’s IRR?(b) If each project’s cost of capital were 10%, which project, if either, should be selected? If thecost of capital were 17%, what would be the proper choice?2. (a) What is each project’s MIRR at the cost of capital of 10%? At 17%? (Hint: Consider Period 7as the end of Project B’s life.)3. What is the crossover rate, and what is its significance?© 2015 Strayer University. All Rights Reserved. This document contains Strayer University Confidential and Proprietary informationand may not be copied, further distributed, or otherwise disclosed in whole or in part, without the expressed written permission ofStrayer University.FIN 534 Homework Set #4 1156 (5-19-2015)Page 1 of 2FIN 534 – Homework Set #4Use the following information for Question 4:The staff of Porter Manufacturing has estimated the following net after-tax cash flows and probabilities fora new manufacturing process:Line 0 gives the cost of the process, Lines 1 through 5 give operating cash flows, and Line 5* contains theestimated salvage values. Porter’s cost of capital for an average-risk project is 10%.Net After-Tax Cash FlowsYearP = 0.2P = 0.60−$100,000−$100,000120,00030,000220,00030,000320,00030,000420,00030,000520,00030,0005*020,000P = 0.2−$100,00040,00040,00040,00040,00040,00030,0004. Assume that the project has average risk. Find the project’s expected NPV. (Hint: Use expectedvalues for the net cash flow in each year.)© 2015 Strayer University. All Rights Reserved. This document contains Strayer University Confidential and Proprietary informationand may not be copied, further distributed, or otherwise disclosed in whole or in part, without the expressed written permission ofStrayer University.FIN 534 Homework Set #4 1156 (5-19-2015)Page 2 of 2

 

 

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