Check Figures

Chapter 2
1. Owner's equity $15,400; Net working capital $1,300
2. Net income $98,150; Addition to retained earnings $68,150
3. Tutorial Question
4. Average tax rate 32.86%; The marginal tax rate is 39%
5. Operating cash flow $6,300
6. Net capital spending $415,000
7. Total liabilities & equity $364,000,000
8. Tutorial Question
9. Cash flow to stockholders $(60,000)
10. Operating cash flow $855,000
11. Change in cash $10; Change in NWC $5; Cash flow from assets $70
12. Cash flows from the firm $(22,900); Cash flows to investors of the firm $(6,500)
13. Tutorial Question
14. Tutorial Question
15. Depreciation expense $2,806.15
16. Tutorial Question
17. Corporation Growth: $17,490; Corporation Income: $2,924,000; Addition: $3,400
18. Net income $(145,000); Operating cash flow $65,000; Net income was negative because of
the tax deductibility and interest expense.
19. Net new long-term debt $39,000
20. Net income $1,398; Operating cash flow $4,768; Cash flow from assets $(12); Cash flow to
creditors $670; Cash flow to stockholders $(682)
21. 2011 Owners' equity $2,570; 2012 Owners' equity $3,018; Change in net working capital
$45; Fixed assets sold $290; Cash flow from assets $2,633; Debt retired $115; Cash flow
to creditors $(3)
22. Irrelevant
23. Cash flow from assets $(411.24); Cash flow to creditors $(1,987.00); Cash flow to
stockholders $1,575.76
24. Operating cash flow $334; Capital spending $192; NWC cash flow $(7); Cash flow to
creditors $94; Cashflow to stockholders $55
25. Irrelevant
26. Irrelevant

Chapter 4
1. Difference $1,794.62
2. a. $1,628.89; b. $2,593.74; c. $2,653.30
3. $9,213.51; $12,465.48; $110,854.15; $13,124.66
4. 6.13%; 10.27%; 7.41%; 12.79%
5. 8.35; 16.09; 19.65; 27.13
6. 9.01; 18.01
7. $159,790,565.17
8. -13.17%
9. $3,260.87
10. a. $4,401.10; b. $3,132.57; c. $3,462.03; d. $3,826.13
11. Value at 10% $3,191.49; Value at 18% $2,682.22; Value at 24% $2,381.91
12. Value of X At 5% $31,985.20, At 22% $17,038.28; Value of Y At 5% $30,306.34, At 22%
$20,045.48
13. Present value for 15 years $41,941.45; Present value for 40 years $58,430.61; Present value
for 75 years $61,059.31; PV (forever) $61,250.00
14. Present value $288,461.54; Required interest rate 4.69%
15. Tutorial Question
16. 9.57%; 18.03%; 7.98%; 13.28%
17. 11.79%; 11.72%
18. Cost per case $108.00; Interest rate per week 1.98%; APR 102.77%
19. # of months until paid off 39.46
20. APR 1733.33%; EAR 313916515.69%
21. a $1,677.10; b $1,695.88; c $1,712.55; d $1,716.01
22. First Complex Bank interest rate 4.14%
23. Tutorial Question
24. Quarterly return 41.42%
25. Return on investment G 11.51%; Return on investment H 11.03%
26. Tutorial Question
27. Value today $276.92
28. Value today $63,996.17
29. Value today $2,492.82
30. Balloon payment $386,994.11
31. Accrued interest $799.73
32. Interest rate 9.08%
33. Present value of cash flows $85,593.99. The company should do the revision
34. Future value of deposits $2,279,147.23
35. Value of investment at 10% $51,721.34; Value of investment at 5% $70,581.67;
Value of investment at 15% $39,762.12
36. Number of payments 73.04
37. Maximum interest rate 8.07%
38. Balloon payment $385,664.73
39. Value of missing CF $1,908.44
40. Present Value $15,885,026.33
41. APR 8.43%; EAR 8.76%
42. Profit (loss) $3,700.77; Breakeven rate 14.81%
43. Value today $42,854.96
44. Total present value of the annuity $134,455.36
45. Lump sum needed $166,406.81
46. Present value at year 7 $27,077.12
47. APR 28.33%; EAR 32.31%
48. Present value at year 5 $24,022.10; Present value at year 3 $18,918.99; Present value at
year 0 $13,222.95
49. a) PV of ordinary annuity $82,003.95, PV of annuity due $87,744.23; b) FV of ordinary
annuity $115,014.78, FV of annuity due $123,065.81
50. Tutorial Question
51. Monthly payment $105.64
52. Annual savings required $11,571.48
53. Present value $808,533.55
54. PV of Option A $2,413,627.41; PV of option B$2,316,901.93; You should choose Option A.
55. Percentage of salary 15.81%
56. Total amount of balloon payment $18,451.74
57. Savings needed per month $2,519.10
58. You should Buy the car since the PV is lower. Breakeven resale price $19,370.95
59. Quarterly salary $1,338,243.52
60. EAR 17.65%
61. Total value awarded $431,598.39
62. EAR 11.34%; EAR 13.27%; The effective rate is not affected by the loan amount since it
drops out when solving for R.
63. Refundable fee: APR 5.41%, EAR 5.54%; Nonrefundable fee: APR 5.30%, EAR
5.43%
64. APR 35.71%; EAR 42.18%; It's called add-on interest because the interest amount of
the loan is added to the principal amount of the loan before the loan payments are
calculated.
65. Difference 35.59; no. of months with fees 62.92
66. Total value at year 65 $308,437.08, The policy is not worth buying; the FV of the policy
is less than the payout at retirement. Difference in 65 years $33,437.08
67. Total value of winnings $24,172,827.50; You should not take the offer
68. Breakeven rate 8.54%
69. Discount rate needed 8.98%
70. Tutorial Question
71. Irrelevant
72. a. APR 364.00%, EAR 3272.53%; b. Weekly rate 7.53%, APR 391.40%, EAR
4253.98%; c. Weekly rate 16.75%, APR 871.00%, EAR 314215.72%
73.75Irrelevant
Chapter 5 (Note: Questions requiring the computation of IRR will not be examined.)

1. a) Project A Payback 1.917, Project B Payback 2.083; b) Project A NPV $(624.23),

Project B NPV $368.54
2. Payback period 3.81, Payback period 5.71, Payback period Never
3. Tutorial Question
4. Payback period 3.95
7. Profitability index 0.965
8. Tutorial Question
9. C = I/N; C > I / (PVIFAR%,N); C = 2I / (PVIFAR%,N)
10. b) Reject the project; c) Accept the project; d) NPV at 10% $(293.70), NPV at 20%
$803.24; e) Yes
11. b) Incremental IRR 14.79%; c) NPV (Fishing) $50,477.88, NPV (Submarine)
$61,276.34
12. The profitability index implies accept Project II. NPV decision rule implies accept Project I.

Using the profitability index to compare mutually exclusive projects can be ambiguous when
the magnitude of the cash flows for the two projects are of different scale.

13. NPV $16,239,669.42

14. Tutorial Question
15. Highest PI 3.73, Profitability index implies accept G4 because it has the highest value.
Highest NPV $37,836,213.37, NPV criterion implies accept Wi-Fi because it has a higher NPV.

16. a). Payback criterion implies accept AZM because it has a shorter payback. b). NPV criterion
implies accept AZM because it has a higher NPV.
17. Project A Project B Project C
a. Profitability index 1.24 1.13 1.19
b. NPV $35,905.61 $38,010.20 $28,890.31
c. If independent projects: Project A Accept; Project B Accept; Project C Accept

18. a. Payback criterion implies accept Solvent Prepeg because it pays back sooner.

b. NPV criterion implies accept Dry Prepeg because it has a higher NPV.

d. Incremental IRR 25.52%

19. a. Payback (NP-30) 2.97

 Payback (NX-20) 3.14
Payback decision rule implies accept NP-30

c. Profitability index (NP-30) 1.128

Profitability index (NX-20) 1.139
PI decision rule implies accept NX-20 because its PI is greater.

d. NPV (NP-30) $70,148.69

NPV (NX-20) $48,583.79
NPV criterion implies accept NP-30 because it has a higher NPV.
20. IRR 48.18%; IRR -41.51%; NPV $17,403.85
21. Worst-case NPV $(214,122.09); The best case has infinite cash flows beyond the

payback point. Thus, the best-case NPV is infinite.

22. Tutorial Question

23. Tutorial Question
25. NPV $(5,392.06)
26. a. PV of cash flow A $88,687.82, PV of cash flow B $(74,404.76); b. NPV $14,283.06;

c. The correct decision rule for an investing-type project is to accept the project if the
discount rate is below the IRR. Since there is one IRR, a decision can be made. At a point in
the future, the cash flows from stream A will be greater than those from stream B.
Therefore, although there are many cash flows, there will be only one change in sign. When
the sign of the cash flows change more than once over the life of the project, there may be
multiple internal rates of return. In such cases, there is no correct decision rule for
accepting and rejecting projects using the internal rate of return.

27. So, I0 must be less than $(1,890.32)

Chapter 6

1. NPV $1,427.98
2. Tutorial Question
3. NPV $(8,539.09)
4. Year Cash flow
0 $(1,685,000.00)
1 $579,333.33
 2 $579,333.33
3 $1,010,583.33
NPV $13,416.15
5. Year Cash flow
0 $(1,685,000.00)
1 $579,317.00
2 $633,805.00
3 $956,128.00
NPV $18,065.81
6. IRR 20.06%
7. Tutorial Question
8. Aftertax cash flow $1,339,408
9. NPV $473,521.38
10. Techron I: EAC $(83,329.16), Techron II: EAC $(82,554.30); you prefer the Techron II
because it has the lower (less negative) annual cost.
11. NPV $49,908.03
12. System A: NPV $(387,571.92); System B: NPV $(517,320.78). If the system will not be
replaced when it wears out, then System A should be chosen.
13. System A: EAC $(124,924.64); System B: EAC $(122,282.51); If the system is replaced,
System B should be chosen because it has the lower EAC.
14. Tutorial Question
15. Project A NPV $14,378.65; Project B NPV $18,838.35
16. Value of company $24,486,000
17. Total nominal cash flow $(375,000) $140,320 $143,785 $147,354
$151,030 $194,516
18. Value of company $1,266,666.67
19. EAC $(30,638.84)
20. Tutorial Question
21. Buy new machine Keep old machine
NPV $439,107.30 $(3,230,628.71)
IRR 11.10% -25.15%
22. NPV $30,170.71
23. NPV $59,424.64
24. NPV $265,791.25
25. Tutorial Question
26. XX40: EAC $(472.84); RH45: EAC $(450.94). The two copiers have unequal lives, so they can
only be compared by expressing both on an equivalent annual basis which is what the EAC
 method does. Prefer the RH45 because it has the lower (less negative) annual cost.

27. NPV $103,915.73

28. Net present value $6,106,958.94; Internal rate of return 27.54%
29. Pretax cost savings $196,946.15
30. Tutorial Question
31. Tutorial Question
32. Bid price $182.60
33. a). Old computer: EAC -$81,342.95, New Computer: EAC -$59,971.00; b). NPV -$71,941.08
34. Differential NPV: Rent vs. product A $(31,598.43), Rent vs. Product B $(22,150.69)
35. NPV $373,708.45
36. Tutorial Question
37. Headache: NPV $5,542,122.70; Headache and Arthritis: NPV $6,363,109.18
38. NPV $2,187,376.60

Chapter 7(Note: Questions on real options will not be examined.)

1. a. Accounting breakeven 50,344; b. NPV $681,218.22, For a sales change of (500), the NPV
would change $(23,334.07); c. If variable costs change by $(1.00) then OCF would change by
$45,500.00
2. Best-case NPV $2,475,316.67; Worst-case NPV $(969,375.68)
3. a. Depreciation $228,300
b. Unit price $83.12
c. Unit variable cost $63.18
4. Financial breakeven 28,838.72
5. Tutorial Question
6. NPV of going to market now $23,000,000.00; NPV of test marketing $25,366,666.67; The
company should test market first since this option has the highest NPV.
7. Tutorial Question
8. NPV of going to market now $13,150,000.00; NPV of market research $11,930,434.78; The
company should go directly to market since this option has the highest NPV.
9. Accounting breakeven 17,128.03; EAC $201,902.71; Financial breakeven 21,488.03
10. Financial breakeven 7,042.57
11. a. IRR = 0% payback = N years NPV = I[(I/N)(PVIFA R%,N) - 1]

b. IRR = R% payback < N years NPV = 0

12. DOCF/DQ $9.24

13. Tutorial Question
14. Payback period 2.969; NPV $14,246,366.65; IRR 27.89%
15. Best: NPV $47,885,545.13 Worst: ($15,363,520.60)
16. DNPV/DP $154,378.97; DNPV/DQ $1,144.98
20. a. Accounting breakeven 1,018.18; b. Financial breakeven 1,622.14
21. The screenwriter should take the cash upfront.
25. NPV $(1,391,245.16); $180,226.26; $2,096,006.65
26. a. OCF $1,215,500.00, NPV $1,270,389.92; b. Best case NPV $4,247,716.34, Worst
case NPV $(1,706,936.50)
27. DOCF/DQ $37.20; DNPV/DQ $130.84; You wouldn't want Q to fall below the point
where NPV = 0, Minimum Q 25,291
30. Purchase price $77,481.32