02.08.2019
 Essay about Practice Prelim Solutions

Practice Complications for Examination #1

AEM 4570: Advanced Corporate Fund

All questions are in " Principals of Corporate Finance” by Brealey, Myers, and Allen(10 ed. ).

Chapter #2: How to Determine Present Benefit

Question: #14, 18, 21

Chapter #5: NPV and Other Investment Criteria

Question: #10, 13

Chapter #10: Project Analysis

Problems: #4, 15, 19

Section #20: Understanding Options

Challenges: #10, 18, 18, 19

Chapter #21: Valuing Alternatives

Problems: #6, 11, of sixteen (a), 18 (a, n, c)

Chapter #2: How to Calculate Present Value

16. The present worth of the 10-year stream of money inflows is:

Thus:

NPV = –$800, 000 & $886, 739. 66 sama dengan +$86, 739. 66

By the end of five years, the factory's value could be the present value of the five remaining one hundred seventy dollars, 000 funds flows:

18. We can break this down into several different funds flows, in a way that the quantity of these independent cash flows is the total cash flow. In that case, the total of the present values with the separate money flows is definitely the present worth of the entire project. (All dollar figures are in millions. ) Cost of the ship is definitely $8 million

PV sama dengan $8 mil

Revenue is definitely $5 , 000, 000 per year, working expenses are $4 , 000, 000. Thus, functioning cash flow can be $1 million each year for 12-15 years.

Significant refits expense $2 , 000, 000 each, and definitely will occur sometimes t sama dengan 5 and t sama dengan 10. PHOTOVOLTAIC = ($2 million)/1. 085 + ($2 million)/1. 0810 = $2. 288 mil Sale pertaining to scrap produces revenue of $1. five million in t = 15.

PHOTO VOLTAIC = $1. 5 million/1. 0815 = $0. 474 million

Adding these present values shows the present value of the whole project: NPV = $8 million + $8. 559 million  $2. 288 million + $0. 474 million NPV = $1. 256 mil

21. Believe the Zhangs will put away the same amount each year. One method of solving this challenge is to get the present worth of the cost in the boat then equate that to the present benefit of the cash saved. Out of this equation, we are able to solve intended for the amount to be put aside every year. PV(boat) sama dengan $20, 000/(1. 10)5 sama dengan $12, 418

PV(savings) = Annual savings

Because PV(savings) must equivalent PV(boat):

Total annual savings

Annual savings

Section #5: NPV and Other Expense Criteria

10.

r sama dengan

-17. 44%

zero. 00%

12. 00%

12-15. 00%

twenty. 00%

twenty-five. 00%

forty-five. 27%

12 months 0

-3, 000. 00

-3, 000. 00

-3, 000. 00

-3, 000. 00

-3, 000. 00

-3, 500. 00

-3, 000. 00

-3, 1000. 00

Yr 1

a few, 500. 00

4, 239. 34

a few, 500. 00

3, 181. 82

three or more, 043. 48

2, 916. 67

a couple of, 800. 00

2, 409. 31

Yr 2

4, 000. 00

5, 868. 41

four, 000. 00

3, 305. 79

three or more, 024. 57

2, 777. 78

2, 560. 00

1, 895. 43

Year 3

-4, 000. 00

-7, 108. 06

-4, 000. 00

-3, 005. 26

-2, 630. 06

-2, 314. 81

-2, 048. 00

-1, 304. 76

PHOTO VOLTAIC =

-0. 31

500. 00

482. thirty-five

437. 99

379. 64

312. 00

-0. 02

The two IRRs for this task are (approximately): –17. 44% and forty-five. 27%

Among these two savings, the NPV is positive.

13. Work with incremental examination:

C1

C2

C3

Current arrangement

-250, 000

-250, 000

+650, 000

Extra shift

-550, 000

+650, 000

0

Incremental moves

-300, 1000

+900, 000

-650, 500

The IRRs for the incremental moves are (approximately): 21. 13% and 78. 87% In case the cost of capital is among these rates, Titanic will need to work the additional shift.

Section #10: Project Analysis

some. a. Phony

b. Accurate

c. The case

d. True

e. Phony

f. The case

10.

Year 0

Years 1-10

Investment

¥15 B

1 ) Revenue

¥44. 000 B

2 . Adjustable Cost

39. 600 N

3. Set Cost

installment payments on your 000 W

4. Downgrading

1 . five-hundred B

five. Pre-tax Income

¥0. nine hundred B

six. Tax snabel-a 50%

0. 450 W

7. Net Operating Profit

¥0. 450 B

almost 8. Operating Income

¥1. 950 B

nineteen. Working via right to still left, the following chart calculates a weighted typical NPV of 119 at the start of Period 3 trials.

Weighted NPV

Prob. of outcome

NPV with abandonment

Resulting NPV with 135 investment; l = 9. 6%

Phase III outcomes

PV in the event that successful

Possibility of Period III success

39

5%

781

781

Blockbuster

truck

80%

fifty nine

20%

295

295

Above average

700

80%

21

40%

52

52

Average...