# Project Evaluation Problems

UNIT 3: TEXTBOOK PROBLEMS

CHAPTER 7: PROBLEM 1b

Project A Project B

Discount Rate 15% 15%

Year 0 ($14,500) ($9,800)

Year 1 $8,500 $4,700

Year 2 $6,800 $4,200

Year 3 $2,800 $4,100

NPV = #NAME? #NAME? (Note: You will choose the project that has the highest NPV since it creates the most wealth)

CHAPTER 7: PROBLEM 2

Year A. B. C.

0 $3,200 $4,600 $7,900

1 $825 $825 $825

2 $825 $825 $825

3 $825 $825 $825

4 $825 $825 $825

5 $825 $825 $825

6 $825 $825 $825

7 $825 $825 $825

8 $825 $825 $825

Payback Period = #NAME? #NAME? #NAME?

CHAPTER 7: PROBLEM 8

Year Project A Project B

0 ($5,200) ($3,600)

1 1,800 1,300

2 3,200 2,100

3 2,200 1,800

IRR = #NAME? #NAME?

CHAPTER 7: PROBLEM 9

Discount Rate 15%

Year

0 (Initial Cost) ($185,000) $185,000

1 62,000

2 62,000

3 62,000

4 62,000

5 62,000

6 62,000

7 62,000

First find the NPV #NAME? (Use the built-in NPV formula in Excel but exclude using the Year 0 cash outflow)

Now calculate the Profitability Index #NAME? (Use the positive amount of the initial cost in cell C44 in the formula. You would only accept the project if the Profitability Index is above 1)

CHAPTER 8: PROBLEM 1

Cost of Souffle Maker $27,000 ($27,000)

Economic Life 6 years

# of Souffles produced per year 2,300

Cost to make each Souffle $2

Price of each Souffle $7

Discount Rate 14%

Tax Rate 34%

Step 1: First calculate the Operating Cash Flow #NAME?

Step 2: Place the answer you get for your Operating Cash Flow in the year 1 thru year 6 cells below

Year 1 #NAME?

Year 2 #NAME?

Year 3 #NAME?

Year 4 #NAME?

Year 5 #NAME?

Year 6 #NAME?

Step 3: Now find the NPV. Be sure to include the initial cost by using cell C58 as it is negative

NPV = #NAME? (You will accept the project if the NPV is positive)

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#### Solution Summary

This solution illustrates how to use Excel functions to find a project's net present value, payback period, internal rate of return, profitability index, and operating cash flow.