appendix bappendix d

Problem 22-17 A firm has the following investment alternatives. Each costs $14,000 and has the following cash inflows. Year Cash Inflow 1 2 3 4 A $ 4,800 3,600 5,700 $ 4,800 5,600 B $4,800 4,700 3,600 $4,800 3,900 2,600 4,300 Investment A is considered to be typical of the firm's investments. Investment B's cash flows vary over time but are considered to be less certain. Investment C's cash flows diminish over time but because most of the cash flows occur early in the investment's life, they are considered to be more certain. The firm's cost of capital is 10 percent, but the financial manager uses a hurdle rate of 6 percent for less-risky projects and 14 percent for riskier projects. Use Appendix B and Appendix D to answer the questions. Assume that the investments are not mutually exclusive and there are no budget restrictions. a. Based on the cost of capital, should any of the investments be made? Use a minus sign to enter negative values, if any. Round your answers to the nearest dollar. NPV(Investment A): $ NPV(Investment B): $ NPV(Investment C): $ X Investments A and B should be made. b. If the financial manager uses a risk-adjusted cost of capital, should any of the investments be made? Use a minus sign to enter negative values, if any. Round your answers to the nearest dollar. NPV(Investment A): $ NPV(Investment B): $ NPV(Investment C): $ Investments A and C should be made. c. Would the answers to a and b be different if the three investments were mutually exclusive? If the investments were mutually exclusive in part a investment A should be made. If the investments were mutually exclusive in part b investment A should be made. Interest Factors for the Present Value of One Dollar Time Period (e.g. 1% 5% 6% 7% 8% 10% 12% 14% 24% year) 1 2 3 4 5 UAWN- 2% 980 1961 1942 .924 .906 990 980 971 1961 951 3% 4% .971 962 .943 .925 915 .889 .855 .863 822 952 .907 .864 .823 .784 .943 .890 .840 .792 .747 .806 .650 9% 917 .842 .772 .708 .650 .935 .873 .816 .763 .713 .926 .857 .794 .735 .681 .909 .826 .751 .683 .621 .889 15% .870 .756 .658 .572 497 .893 .797 .712 .636 .567 16% .862 .743 .641 .552 476 .877 .769 .675 .592 .519 18% .847 .718 .609 1516 437 20% .833 .694 579 482 402 28% .781 .610 .477 .373 .291 524 423 .341 6 7 8 9 10 000 942 .933 .923 .914 .905 .888 .871 .853 .837 .820 .838 .813 .789 .766 .744 .790 .760 .731 .703 .676 .746 .711 .677 .645 .614 .705 .665 .627 .592 .558 .666 .630 .623 583 1582 .540 .544 .500 .508 .463 1596 547 .502 460 422 .564 .513 467 424 .386 .507 .452 .404 361 .322 .456 .400 .351 .308 .270 432 .376 .327 .284 .247 410 .354 .305 .263 .227 .370 .314 .266 .226 .191 335 .279 .233 .194 .162 .275 .222 .179 .144 .116 .227 .178 .139 . 108 .085 .287 .257 11 12 13 14 15 .896 .887 .879 .870 .861 .804 .788 .773 .758 .743 .722 .701 .681 .661 .642 .650 .625 .601 577 .555 .585 .557 .530 .505 481 .527 .497 .469 .442 .417 475 444 415 .388 .362 429 .397 .368 .340 .315 388 1356 .326 .299 .275 .350 .319 .290 .263 .239 .229 .237 .208 .182 .160 .140 .215 .187 .163 .141 .123 .195 .168 .145 .125 .108 .162 .137 .116 .099 .084 .135 .112 .093 .078 .065 .094 .066 .076 052 .061 .040 .049 .032 .040.025 .205 .183 16 17 18 19 20 .853 .844 .836 .828 .820 .728 .714 .700 .686 .673 .623 .534 .605 513 494 .570 .475 .554 456 .587 .458 .436 416 .396 377 .394 .371 .350 .331 .312 .339 .317 .296 .276 .258 .292 .270 .250 .232 .215 .252 .231 .212 .194 .178 .218 .198 .180 .164 .149 .163 .146 .130 .116 .104 .123 .107 .093 .108 .093 .080 .095 .081 .069 .083 .070.060 .073 .061.051 .071 .060 .051 .043 .037 .054 .045 .038 .031 .026 .032 .019 .026 015 .021 .012 .017 .009 .014 .007 25 .780 .610 .478 375 .295 .233 .184 .146 .116 .092 .059 .038 .030 .024 .016 .010 .005 .002 30 .742 .552 .412 308 .231 .174 .131 .099 .075 .057 033 .020 .015 .012 .007 .004 .002 .001 Interest Factors for the Present Value of an Annuity of One Dollar Time Period (e.g. year) 1 2 3 4 5 U AWN 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 12% 14% 16% 18% 20% 24% 28% 32% 36% 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.893 0.877 0.862 0.847 0.833 0.806 0.781 0.758 0.735 1.970 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736 1.690 1.647 1.605 1.566 1.528 1.457 1.392 1.332 1.276 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2.402 2.322 2.246 2.174 2.106 1.981 1.868 1.766 1.674 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.037 2.914 2.798 2.690 2.589 2.404 2.241 2.096 1.966 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.605 3.433 3.274 3.127 2.991 2.745 2.532 2.345 2.181 6 7 8 9 10 ON 00 5.795 5.601 5.417 5.242 5.076 4.917 4.766 4.623 4.486 4.355 4.111 3.889 3.685 3.498 3.326 3.020 2.759 2.534 2.399 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.564 4.288 4.039 3.812 3.605 3.242 2.937 2.678 2.455 7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 4.968 4.639 4.344 4.078 3.837 3.421 3.076 2.786 2.540 8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.985 5.759 5.328 4.946 4.607 4.303 4.031 3.566 3.184 2.868 2.603 9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145 5.650 5.216 4.833 4.494 4.193 3.682 3.269 2.930 2.650 11 12 13 14 15 10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 5.988 5.453 5.029 4.656 4.327 3.776 3.335 2.978 2.683 11.255 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814 6.194 5.660 5.197 4.793 4.439 3.851 3.387 3.013 2.708 12.134 11.348 10.635 9.986 9.394 8.534 8.358 7.904 7.487 7.103 6.424 5.842 5.342 4.910 4.533 3.912 3.427 3.040 2.727 13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.244 7.786 7.367 6.628 6.002 5.468 5.008 4.611 3.962 3.459 3.061 2.740 13.865 12.849 11.938 11.118 10.380 9.712 9.108 8.559 8.060 7.606 6.811 6.142 5.575 5.092 4.675 4.001 3.483 3.076 2.750 16 17 18 19 20 14.718 13.578 12.561 11.652 10.838 10.106 9.447 8.851 8.312 7.824 6.974 6.265 5.669 5.162 4.730 4.003 3.503 3.088 2.758 15.562 14.292 13.166 12.166 11.274 10.477 9.763 9.122 8.544 8.002 7.120 6.373 5.749 5.222 4.775 4.059 3.518 3.097 2.763 16.398 14.992 13.754 12.659 11.690 10.828 10.059 9.372 8.756 8.2017.250 6.467 5.818 5.273 4.812 4.080 3.529 3.104 2.767 17.226 15.678 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365 7.366 6.550 5.877 5.316 4.844 4.0973.539 3.109 2.770 18.046 16.351 14.877 13.590 12.462 11.470 10.594 9.818 9.128 8.514 7.469 6.623 5.929 5.353 4.870 4.110 3.546 3.113 2.772 25 22.023 19.523 17.413 15.622 14.094 12.783 11.654 10.675 9.823 9.077 7.843 6.873 6.097 5.467 4.948 4.147 3.564 3.122 2.776 30 25.808 22.937 19.600 17.292 15.373 13.765 12.409 11.258 10.274 9.427 8.055 7.003 6.177 5.517 4.979 4.160 3.569 3.124 2.778