Name:
Section:
Score: 0%
Key Code:
1. Net present value analysis:
Site A:
Annual net cash flow (at the end of each of 6 years)
Site B:
Annual net cash flow (at the end of each of 4 years)
Present value of an annuity of $1 at 20% for 4 years
2. Net present value analysis:
Year
Site A Site B Site A Site B
1
2
3. Which of the following points are valid and could be reported to the Investment Committee?
a. Projects must be compared over equal lives, so the residual value of Site A
at the end of period 4 is used to equalize the two lives.
c. If funds are limited and only one of the two projects can be funded, then there
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Present Value
of $1 at 20%
Factor
Present Value of
Net Cash Flows
Net Cash Flows
Instructions
2
Name:
Section:
Score: See student sheet for student’s score
Scoring:
1. Net present value analysis:
Site A:
Annual net cash flow (at the end of each of 6 years) 400,000$
Present value of an annuity of $1 at 20% for 6 years 3.326
Site B:
Annual net cash flow (at the end of each of 4 years) 500,000$
Present value of an annuity of $1 at 20% for 4 years 2.589
2. Net present value analysis:
Year
Site A Site B Site A Site B
10.833 400,000$ 500,000$ 333,200$ 416,500$
3. Which of the following points are valid and could be reported to the Investment Committee?
a. Projects must be compared over equal lives, so the residual value of Site A
at the end of period 4 is used to equalize the two lives. TRUE
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Net Cash Flows
Present Value of
Net Cash Flows
Present Value
of $1 at 20%
Factor
SOLUTION
Instructions
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Section:
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Key Code:
a.
Initial investment:
Net Cash Flows
Cumulative Net
Cash Flows
Net Cash Flows
Cumulative Net
Cash Flows
Year 1
Year 2
b.
Indicate which of the following statements are true (T) and which are false (F).
a. Both products earn the same total net cash flow over their 8-year lives.
b. Body Wash’s payback period is superior to Shampoo/Conditioner’s payback period.
c.
Assuming the cash flows occur uniformly throughout the year,
the additional $50,000 of cash flows would occur after
Exercise 15-6
Instructions
Body Wash
2
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Shampoo/Conditioner
Name:
Section:
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Scoring:
a.
Initial investment: 1,125,000$
Net Cash Flows
Cumulative Net
Cash Flows
Net Cash Flows
Cumulative Net
Cash Flows
Year 1 450,000$ 450,000$ 187,500$ 187,500$
b.
Indicate which of the following statements are true (T) and which are false (F).
a. Both products earn the same total net cash flow over their 8-year lives. T
c.
Assuming the cash flows occur uniformly throughout the year,
the additional $50,000 of cash flows would occur after 4 months
Exercise 15-6
SOLUTION
Instructions
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Shampoo/Conditioner
Body Wash
Name:
Section:
Score: 0%
Key Code:
1.
Proposal Sierra: -year -month cash pay-back period
Year
Net Cash
Flows
Proposal Tango: -year -month cash pay-back period
Year
Net Cash
Flows
Proposal Uniform: -year -month cash pay-back period
Year
Net Cash
Flows
Net Cash
Flows
Cumulative Net
1
2
months
Problem 15-6
Instructions
2
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Cumulative Net
Cash Flows
Cumulative Net
Cash Flows
Cumulative Net
Cash Flows
2.
Proposal Sierra:
Proposal Victor:
3.
Proposal
Cash
Payback
Period
Average Rate
of Return
Accept for
Further
Analysis
Reject
Sierra
4.
Year
Net Cash
Flows
1
2
Year
Net Cash
Flows
1
2
Present Value of $1 at
12% Factors
Present Value of
Net Cash Flows
=
Proposal Uniform
Proposal Tango
Present Value of $1 at
12% Factors
Present Value of
Net Cash Flows
=
Proposal Tango:
Proposal Uniform:
=
=
5.
6.
First:
Second:
7.
8.
Indicate whether the statement is true (T) or false (F).
a. Although Proposal Tango has the larger net present value, Proposal Uniform has
a higher present value index.
Based on the net present value, the proposals should be
ranked as follows:
Present Value Index =
Total Present Value of Net Cash Flows
Amount to Be Invested
Name:
Section:
Score: See student sheet for student’s score
Scoring:
1.
Proposal Sierra: 3 -year 6 -month cash pay-back period
Year
Net Cash
Flows
1250,000$ 250,000$
Year
Net Cash
Flows
Net Cash
Flows
Cumulative Net
Cash Flows
1560,000$ 560,000$
2540,000 1,100,000
3 months 100,000 1,200,000
Proposal Victor: 3 -year 3 -month cash pay-back period
Year
Net Cash
Flows
Cumulative Net
Cash Flows
Cumulative Net
Cash Flows
Cumulative Net
Cash Flows
Problem 15-6
SOLUTION
Instructions
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ON
2.
Proposal Sierra:
$200,000 5
$850,000 2
Proposal Tango:
3.
Proposal
Cash Payback
Period
Average Rate
of Return
Accept for
Further
Analysis
Reject
Sierra 3 yrs., 6 mos. 9.4% No Yes
Tango 2 yrs. 3 mos. 27.3% Yes No
Uniform 2 yrs., 9 mos. 31.3% Yes No
Victor 3 yrs., 3 mos. 14.7% No Yes
4.
Year
Net Cash
Flows
284,800
190,800
124,740
10.893 560,000$
20.797 540,000
Year
Net Cash
Flows
10.893 200,000$
20.797 200,000
=
9.4%
Proposal Tango
Present Value of $1 at
12% Factors
Present Value of
Net Cash Flows
Proposal Uniform
Present Value of $1 at
12% Factors
178,600$
500,080$
430,380
159,400
Present Value of
Net Cash Flows
Proposal Uniform:
Proposal Victor:
5.
6.
7.
First: Uniform
Second: Tango
8.
Indicate whether the statement is true (T) or false (F).
Total Present Value of Net Cash Flows
Amount to Be Invested
Based on the present value index (the amount of present
value per dollar invested), the proposals should be
ranked as follows:
Based on the net present value, the proposals should be
ranked as follows:
Present Value Index =