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)
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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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