FE PROBLEM 4.1
a. 0.0
FE PROBLEM 4.2
d. $1,082,000
rationale: $200,000(P|A 8%,10) – $10,000(P|G 8%,10) = $1,082,248
FE PROBLEM 4.3
a. LESS THAN $10,000
rationale: FOR THIS TYPE OF INVESTMENT, THE PW DECREASES WITH
INCREASING i; THEREFORE, LESS THAN $10,000
FE PROBLEM 4.4
c. P = 250(P|A 10%,6) – 50(P|G 10%,3)
rationale: THE CASH FLOWS FOR THIS EQUATION AT t=1 THROUGH 6 ARE: $250,
$200, $150, $250, $250, $250 THESE CASH FLOWS DO NOT MATCH THE
DIAGRAM SHOWN IN THE QUESTION.
FE PROBLEM 4.5
b. t = 2
rationale: FOR BOTH FACTORS, THE RESULTING P IS LOCATED ONE PERIOD
BEFORE THE FIRST ELEMENT IN THE SERIES. THE FIRST ELEMENT IN
THE SERIES FOR BOTH SERIES IS AT t=3, THEREFORE, THE P IS AT t=2
FE PROBLEM 4.6
c. $1,500
rationale: $120/0.08 = $1,500
FE PROBLEM 4.7
b. $344,500
rationale: PW = $150,000+$17,500(P|A 8%,30)-$25,000(P|F 8%,30) = $344,527
FE PROBLEM 4.8
b. $812
rationale: PW = -$1,232+($412)(0.93)(P|A 10%,8) = $812.12
FE PROBLEM 4.9
d. $1,875
rationale: MAX = $300(P|A 8%,9) = $1,874.07
FE PROBLEM 4.10
d. $37,000
rationale: $17,000+$1,000/0.05 = $37,000
FE PROBLEM 4.11
d. CAN NOT BE DETERMINED WITHOUT THE CASH FLOW PROFILES
rationale: PRESENT WORTH CURVES CAN INTERSECT AND CHANGE
PREFERENCE AT ANY INTEREST RATE. TO FIND THE POINT OF INTERSECTION
(AND SWITCH IN PREFERENCE) THE CASH FLOW PROFILES ARE REQUIRED.
FE PROBLEM 4.12
d. 1.56
rationale: $9,000(P|A 10%,10)/($20,000 + $2,500(P|A 10%,10)) = 1.56
FE PROBLEM 4.13
c. 1.0
FE PROBLEM 4.14
b. INCREMENTAL APPROACH ONLY
FE PROBLEM 4.15
b. 1.83
rationale: $1,500(P|A 8%,15)/$7,000 = 1.83
PROBLEM 4.1
CHOICE DEFINITION
a 3
b 5
c 7
d 6
e 1
f 4
g 2
NO, IT IS NOT POSSIBLE; PW AND IRR ARE CONSISTENT MEASURES OF WORTH; WHEN
PROBLEM 4.3
CHOICE DEFINITION
a 1
b 2
c 3
d 1
e 3
f 1
PROBLEM 4.4
a SOLUTION USING INDIVIDUAL CASH FLOWS AND P|F FACTORS
6.00%
EOY + CF – CF NET CF (P|F i%,n) PW OF CF
0 -$5,000.00 -$5,000.00 1.00000 -$5,000.00
1 -$200.00 -$200.00 0.94340 -$188.68
2 $2,000.00 -$300.00 $1,700.00 0.89000 $1,512.99
3 $4,000.00 -$600.00 $3,400.00 0.83962 $2,854.71
4 $3,000.00 -$1,000.00 $2,000.00 0.79209 $1,584.19
5 $1,600.00 -$1,500.00 $100.00 0.74726 $74.73
$837.93 <- PW
SOLUTION USING EXCEL’S NPV FUNCTION
PW = INVESTMENT + NPV(i,NET CF FOR t=1,n)
PW = $837.93 =E7+NPV(0.06,E8:E12)
DUE TO THE NON-UNIFORM NATURE OF THE NET CF SERIES, EXCEL’S PV FUNCTION
IS NOT USED TO COMPUTE PW.
DUE TO THE NON-UNIFORM NATURE OF THE NET CF SERIES, THE FACTOR TABLES
ARE NOT USED TO COMPUTE PW.
b DECISION RULE
IF PW > 0, ACCEPT; OTHERWISE, REJECT
c DURATECH SHOULD IMPLEMENT THE PROCESS IMPROVEMENT
PROBLEM 4.5
a SOLUTION USING INDIVIDUAL CASH FLOWS AND P|F FACTORS
5.00%
EOY + CF – CF NET CF (P|F i%,n) PW OF CF
0 -$100,000.00 -$100,000.00 1.00000 -$100,000.00
1$12,000.00 -$2,000.00 $10,000.00 0.95238 $9,523.81
2$12,000.00 -$2,000.00 $10,000.00 0.90703 $9,070.29
3$12,000.00 -$2,000.00 $10,000.00 0.86384 $8,638.38
4$12,000.00 -$2,000.00 $10,000.00 0.82270 $8,227.02
5$12,000.00 -$2,000.00 $10,000.00 0.78353 $7,835.26
6$12,000.00 -$2,000.00 $10,000.00 0.74622 $7,462.15
7$12,000.00 -$2,000.00 $10,000.00 0.71068 $7,106.81
8$12,000.00 -$2,000.00 $10,000.00 0.67684 $6,768.39
9$12,000.00 -$2,000.00 $10,000.00 0.64461 $6,446.09
10 $12,000.00 -$2,000.00 $10,000.00 0.61391 $6,139.13
11 $12,000.00 -$2,000.00 $10,000.00 0.58468 $5,846.79
12 $12,000.00 -$2,000.00 $10,000.00 0.55684 $5,568.37
13 $12,000.00 -$2,000.00 $10,000.00 0.53032 $5,303.21
14 $12,000.00 -$2,000.00 $10,000.00 0.50507 $5,050.68
15 $12,000.00 -$2,000.00 $10,000.00 0.48102 $4,810.17
$3,796.58 <- PW
PW = $3,796.58 =E7+NPV(0.05,E8:E22)
SOLUTION USING EXCEL’S PV FUNCTION
PW = INVESTMENT + PV(0.05,15,-NET CF FOR t=1,15)
PW = -$100,000 + $10,000(P|A 5%,15)
PW = -$100,000 + $10,000(10.37966)
c BAILEY SHOULD BUY THE GANG PUNCH