Do not use any spread sheets you can solve any problem youd like. i rate all the time please show work

CHAP. 81 NPV, ROR, PBP, BCR 75 Supplementary Problems A new plant to produce tractor gears requires an initial investment of $10 million. It is expected that a supplemental investmen of $4 million will be needed every 3 years to update the plant. The plant is expected to start producing gears 2 years after the initial investment is made (at the start of the third year) Revenues of SS million per year are expected to begin to flow at the start of the fourth year Annual operating and maintenance costs are expected to be $2 million per year. The plant has a 1S.year life. List the annual cash flows Ans. CF,--$ 10 000 000, CF,-CF2-0, CF,--$6000000, CF. = CF,-CF? = CF,-CF10-CF,,- 8.13 CF,,-CF14-S3 000 000, CFe-CF,-CF12-CFis =-$1 000 000 8.14 What is the NPV of the plant in Problem 8.13 if the interest rate is 10% per year, compounded annually? Ans. -$5 336 645.33 8.15 Is the plant described in Problems 8.13 and 8.14 an economically acceptable investment? Ans. No, because the NPV is negative, 8.16 A different plant from the one described in Problem 8.13 can be built for an initial investment of $13 million and no supplemental investments. All other data are the same as in Problems 8.13 and 8.14. (a) Compute the net present value. (b) Is this plant an economically acceptable investment? Ans. (a) +$855 708.47; (b) yes 8.17 Is the investment described in Problem 8.16 still economically acceptable if the interest rate is 15% per year, compounded annually? Use the net present value method, Ans. No: NPVS3 624 238.52s0 8.18 Compute the NPV of an investment with CFo=-S50 000 and CF,-+$12000 (j= 1,,6) if the annual interest rate, compounded annually, is (a) 8%, (b) 10%, (c) 12%, (d) 15%. (e) Interpret the results. Ans. (a) $5473.37; (2262.53 (c)-$663.98; (d) -$4586.74. (e) The investment is not economically acceptable when the interest rate is 12% or greater, in which case the present worth of the cash flows is less than the (present worth of the) investment. Is the conclusion of Problem 8.15 changed if the interest rate is 5% per year, compounded annu- ally? 8.19 Ans. No: NPV =-$1 928 607.02. 8.20 What is the NPV of the investment described in Problem 8.13 if the interest rate is 3% per year, compounded annually?Ans. $48465.06 8.21 What can be said about the ROR of the plant of Problem 8.13, in view of the results of Problems 8.19 and 8.20? Ans There is at least one value of i" between 3% and 5% 8.22 Approximate the ROR for Problem 8.18 by interpolation between the results of Problem 8.18(b) and 8.23 Compute the payback period for the investment of (a) Problem 8.3, (b) Problem 8.16, (c) Problem 8.24 what is the NPV of the plant described in Problem 8.16, if the interest rate is 12% per year 8.25 What is the ROR of the plant described in Problem 8.16? Solve by interpolation, using the NPV data (c). Ans. i.. 10.454% 8.18. Ans. (a) PBP = 11 years; (b) PBP-8 years; (c) PBP-4.17 years compounded annually?Ans.-S1 195 881.54 from Problems 8.16 and 8.24, Ans. 10.834% 8.26 What can be said about the ROR for a set of positive cash flows? Ans. Since the NPV is positive for every positive i, no ROR exists