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1.
Witchita:
Annual net cash flow (at the end of each of 6 years)
Present value of an annuity of $1 at 20% for 6 years (Exh. 5)
Present value of annual net cash flows
Less amount to be invested
Net present value
Topeka:
Annual net cash flow (at the end of each of 4 years)
Present value of an annuity of $1 at 20% for 4 years (Exh. 5)
Present value of annual net cash flows
Less amount to be invested
Net present value
2.
Present
Value of
$1 at 20% Witchita Topeka Witchita Topeka
Year 1
Year 2
Year 3
Year 4
Year 4 (resid. value)
Total
Amount to be invested
Net present value
3.
Net Present Value Analysis
[Key essay answer here]
Problem 26-5B
Name:
Section:
0%
Score:
Key Code:
Net Cash Flow
Net Cash Flow
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[Key code here]
Present Value of
Net Present Value Analysis
Instructions
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1.
Witchita:
Annual net cash flow (at the end of each of 6 years) 310,000$
Present value of an annuity of $1 at 20% for 6 years (Exh. 5) 3.326
Topeka:
Annual net cash flow (at the end of each of 4 years) 400,000$
Present value of an annuity of $1 at 20% for 4 years (Exh. 5) 2.589
2.
Present
Value of
$1 at 20% Witchita Topeka Witchita Topeka
Year 1 0.833 310,000$ 400,000$ 258,230$ 333,200$
Year 2 0.694 310,000 400,000 215,140 277,600
Year 3 0.579 310,000 400,000 179,490 231,600
3.
Present Value of
Net Present Value Analysis
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Instructions
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Net Present Value Analysis
To: Investment Committee
Both Witchita and Topeka have a positive net present value. This means that both projects meet our minimum
expected return of 20% and would be acceptable investments. However, if funds are limited and only one of
Net Cash Flow
Net Cash Flow
Problem 26-5B
Name:
Solution
Section:
Score:
ON
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1.
Proposal A: -year, -month cash payback period
Net Cash Cumulative
Year and Months Flow Net Cash Flows
Year 1
Year 2
Year 3
Year 4
Proposal B: -year, -month cash payback period
Net Cash Cumulative
Year and Months Flow Net Cash Flows
Year 1
Year 2
Year 3
Year 4
Proposal C: -year, -month cash payback period
Net Cash Cumulative
Year and Months Flow Net Cash Flows
Year 1
Year 2
Year 3
Year 4
Proposal D: -year, -month cash payback period
Net Cash Cumulative
Year and Months Flow Net Cash Flows
Year 1
Year 2
Year 3
Year 4
Payback Period
0%
[Key code here]
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Score:
Problem 26-6A
Name:
Section:
Key Code:
Instructions
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2.
Proposal A:
Proposal B:
Proposal C:
Proposal D:
3.
Cash Payback Period Average Rate Accept for
Proposal Years Months of Return
Further Analysis?
A
B
C
D
4., 5.
Present Present
Value of Net Cash Value of Net
$1 at 15% Flow =Cash Flow
Year 1
Year 2
Year 3
Year 4
Year 5
Total
Amount to be invested
Net present value
Present value index
Present Present
Value of Net Cash Value of Net
$1 at 15% Flow =Cash Flow
=
=
Average Rate of Return
Net Present Value and Present Value Index
=
=
Year 1
Year 2
Year 3
Year 4
Year 5
Total
Amount to be invested
Net present value
Present value index
6., 7.
Based on net present value calculated in Part 4, the proposals should be ranked as follows:
Rank 1
Rank 2
Based on present value index calculated in Part 5, the proposals should be ranked as follows:
Rank 1
Rank 2
8.
[Key essay answer here]
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1.
Proposal A: 3 -year, 6 -month cash payback period
Net Cash Cumulative
Year and Months Flow Net Cash Flows
Year 1 full year 200,000$ 200,000$
Year 2 full year 200,000 400,000
Proposal B: 4 -year, 0 -month cash payback period
Net Cash Cumulative
Year and Months Flow Net Cash Flows
Year 1 full year 90,000$ 90,000$
Year 2 full year 90,000 180,000
Net Cash Cumulative
Year and Months Flow Net Cash Flows
Year 1 full year 55,000$ 55,000$
Net Cash Cumulative
Year and Months Flow Net Cash Flows
Year 1 full year 180,000$ 180,000$
Year 2 full year 180,000 360,000
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Problem 26-6A
Name:
Solution
Section:
ON
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Score:
Instructions
Payback Period
2.
Proposal A:
Proposal B:
Proposal C:
Proposal D:
3.
Cash Payback Period Average Rate Accept for
Proposal Years Months of Return
Further Analysis?
A 3 6 14.1% Reject
4., 5.
Present Present
Value of Net Cash Value of Net
$1 at 15% Flow =Cash Flow
Year 1 0.870 55,000$ 47,850$
Proposal C:
Net Present Value and Present Value Index
Average Rate of Return
Present Present
Value of Net Cash Value of Net
$1 at 15% Flow
=Cash Flow
Year 1 0.870 180,000$ 156,600$
Year 2 0.756 180,000 136,080
6., 7.
Based on net present value calculated in Part 4, the proposals should be ranked as follows:
Rank 1
Based on present value index calculated in Part 5, the proposals should be ranked as follows:
8.
Proposal D:
Proposal D
The present value indexes indicate that although Proposal D has the larger net present value, it is not as
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Enter a zero in cells you would otherwise leave blank.
1.
Proposal A: -year, -month cash payback period
Net Cash Cumulative
Year and Months Flow Net Cash Flows
Year 1
Year 2
Year 3
Year 4
Proposal B: -year, -month cash payback period
Net Cash Cumulative
Year and Months Flow Net Cash Flows
Year 1
Year 2
Year 3
Year 4
Proposal C: -year, -month cash payback period
Net Cash Cumulative
Year and Months Flow Net Cash Flows
Year 1
Year 2
Year 3
Year 4
Proposal D: -year, -month cash payback period
Net Cash Cumulative
Year and Months Flow Net Cash Flows
Year 1
Year 2
Year 3
Year 4
Payback Period
0%
[Key code here]
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Score:
Problem 26-6B
Name:
Section:
Key Code:
Instructions
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2.
Proposal A:
Proposal B:
Proposal C:
Proposal D:
3.
Cash Payback Period Average Rate Accept for
Proposal Years Months of Return
Further Analysis?
A
B
C
D
4., 5.
Present Present
Value of Net Cash Value of Net
$1 at 12% Flow =Cash Flow
Year 1
Year 2
Year 3
Year 4
Year 5
Total
Amount to be invested
Net present value
Present value index
Present Present
Value of Net Cash Value of Net
$1 at 12% Flow =Cash Flow
=
=
Average Rate of Return
Net Present Value and Present Value Index
=
=
Year 1
Year 2
Year 3
Year 4
Year 5
Total
Amount to be invested
Net present value
Present value index
6., 7.
Based on net present value calculated in Part 4, the proposals should be ranked as follows:
Rank 1
Rank 2
Based on present value index calculated in Part 5, the proposals should be ranked as follows:
Rank 1
Rank 2
8.
[Key essay answer here]
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1.
Proposal A: 4 -year, 0 -month cash payback period
Net Cash Cumulative
Year and Months Flow Net Cash Flows
Year 1 full year 120,000$ 120,000$
Year 2 full year 120,000 240,000
Net Cash Cumulative
Year and Months Flow Net Cash Flows
Year 1 full year 100,000$ 100,000$
Year 2 full year 80,000 180,000
Proposal C: 3 -year, 6 -month cash payback period
Net Cash Cumulative
Year and Months Flow Net Cash Flows
Year 1 full year 100,000$ 100,000$
Net Cash Cumulative
Year and Months Flow Net Cash Flows
Year 1 full year 200,000$ 200,000$
Year 2 full year 180,000 380,000
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Problem 26-6B
Name:
Solution
Section:
ON
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Score:
Instructions
Payback Period
2.
Proposal A:
$60,000 5
$450,000 2
Proposal B:
Proposal C:
$120,000 5
$320,000 2
Proposal D:
3.
Cash Payback Period Average Rate Accept for
Proposal Years Months of Return
Further Analysis?
A 4 0 5.3% Reject
4., 5.
Present Present
Value of Net Cash Value of Net
$1 at 12% Flow =Cash Flow
Year 1 0.893 100,000$ 89,300$
Year 2 0.797 80,000 63,760
5.3%
=
Proposal B:
Net Present Value and Present Value Index
Average Rate of Return
=
15.0%
Present Present
Value of Net Cash Value of Net
$1 at 12% Flow
=Cash Flow
Year 1 0.893 200,000$ 178,600$
Year 2 0.797 180,000 143,460
Year 3 0.712 160,000 113,920
6., 7.
Based on net present value calculated in Part 4, the proposals should be ranked as follows:
Rank 1
Based on present value index calculated in Part 5, the proposals should be ranked as follows:
8.
Proposal D:
Proposal D
The present value indexes indicate that although Proposal D has the larger net present value, it is not as
attractive as Proposal B in terms of the amount of present value per dollar invested. Proposal D requires the
