$1($Chapter $5).$ Consider the following cash flows of two mutually exclusive projects for

Merced Granite, Inc.. Assume a $10\%$ discount rate.

Year Livermore project Modesto project

a$.$ Based on the NPV$,$ which project should be taken?

b$.$ Based on the IRR, which project should be taken?

c$.$ If you are using IRR, is incremental IRR appropriate in this case? If yes, please do the

analysis.

$2($Chapter $5)$ The treasurer of Madera Sunnyside Fruit Co$.$ has projected cash flows of

projects A$,$ B and C as follows $($in $$1000).$

Assume a discount rate of $10$ percent.

a$.$ Compute the profitability index for each of the three projects.

b$.$ Compute the NPV for each of the three projects.

c$.$ Suppose the three projects are independent. Which project$($s$)$ should MSF accept

based on the profitability index rule?

d$.$ Suppose the three projects are mutually exclusive. Which project should MSF

choose based on the profitability index rule? Based on NPV$?$

e$.$ Suppose MSF has budget for these projects of $$600,000.$ The projects are not

divisible. Which project$($s$)$ should MSF accept?

$3($Chapter $6)$ Turlock Meats, Inc. is looking at a new processing system with an installed

cost of $$600,000.$ This cost will be depreciated straight$-$line to zero over the project's

five$-$year life, at the end of which the new system can be scrapped for $$100,000.$ The

new processing system will save the firm $$150,000$ per year in pretax operating costs, and

the system requires an initial investment in net working capital of $$30,000($which must

be maintained for the five years$).$ If the tax rate is $35\%$ and the discount rate is $10\%,$

what is the NPV of the project?

$4($Chapter $6).$ Crash Realty must choose between two copiers, the $4$GX and the $5$GQ$.$

The $4$ GX costs $$6000$ and will last for four $(4)$ years. The copier will require a real

aftertax cost of $$600$ per year including all relevant expenses. The $5$ GQ costs $$8000$ and

will last six $(6)$ years; its real aftertax cost will be $$500$ per year. All cash flows occur at

the end of the year. The inflation rate is expected to be $2$ percent per year, and the

nominal discount rate is $5$ percent. Which copier should the company choose?

$5($Chapter $6)$ Optional. $2$ points Extra Credit for perfect answer, showing work. $($Hint:

Do this on an Excel spreadsheet.$)$ Operating costs of an automobile in Best

Semiconductor Inc.$\text{'}$s $($BSI$)$ automotive pool $($for its employees$)$ are as follows for a car

in year t of its age $($e$.$g$.,$ year $1,$ year $2,$ etc.$)$:

t

$1$

$2$

$1000$

$1500$

$3$

$4$

$5$

$6$

$5000$

Cost of auto replacement is $$30,000.$ BSI's discount rate is $10\%.$ Salvage value if a car

is sold at age $t$ is:

$t,1$

$12$

$2$

$16,000$

$3$

$4$

$5$

$5$

$5,000$

$6$

$22,000$

$12,000$

$8,500$

$5,000$

$500$

What is the minimum EAC? What is the optimal age of replacement for an auto in BSI's

fleet?