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    Project Evaluation Problems

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    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)

    © BrainMass Inc. brainmass.com October 10, 2019, 8:28 am ad1c9bdddf
    https://brainmass.com/business/net-present-value/project-evaluation-problems-627561

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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.

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