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21 Waste Industries is evaluating a $51,300 project with the following cash flows. Year's Cash Flows 2 1 $ 9,999 pmms 2 29,999 3 23, 599 4 15, 399 5 24, 399 eEiook , Hint The coefficient of variation for the project is 0.945. Prim Coefficient of Variation Discount Rate 8 i 9.25 6% U . 26 i 9 . 58 8% U . 51 i 9 . 75 12% U .76 i 1 . 88 16% 1 .61 i 1 . 25 26% Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. a' Select the appropriate discount rate. Q 6% O 8% O 12% O 16% O 20% 21 a. Select the appropriate discount rate. 0 6% 2 O 8% points 012% 015% eEook O 20% Hint Prlnl b. Compute the net present value. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.) Net present value I c. Based on the net present value should the project be undertaken? O No 0 Yes 22 points EBDOK Hint Prim Dixie Dynamite Company is evaluating two methods of blowing up old buildings for commercial purposes over the next ve years. Method one (implosion) is relatively low in risk for this business and will carry a 13 percent discount rate. Method two (explosion) is less expensive to perform but more dangerous and will call for a higher discount rate of 17 percent. Either method will require an initial capital outlay of $100,000. The inows from projected business over the next five years are shown next. Year's Method 1 Method 2 1 $29,239 $19,739 2 33, 239 25,439 3 41, 139 35, 539 4 32,439 35,939 5 24, 539 71, 139 [ Use Appendix B for an approximate answer but calculate your final answers using the formula and nancial calculator methods. a. Calculate net present value for Method 1 and Method 2. (Do not round intermediate calculations and round your answers to 2 decimal places.) Net Present Value Method 1 Method 2 23 points eBook Hint Print Debby's Dance Studios is considering the purchase of new sound equipment that will enhance the popularity of its aerobics dancing. The equipment will cost $15,800. Debby is not sure how many members the new equipment will attract, but she estimates that her increased annual cash ows for each of the next ve years will have the following probability distribution. Debby's cost of capital is 13 percent. Use gppendix D for an approximate answer but calculate your nal answers using the formula and financial calculator methods. Cash Flow Probability $3,659 9.5 5,499 9.2 7,969 9.2 9,959 9.1 ' u. What is the expected value of the cash ow? The value you compute will apply to each of the five years. Expected cash ow I b. What is the expected net present value? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.) Net present value I 24 points EEOOK Hlf'lT. Pllt Highland Mining and Minerals Co. is considering the purchase of two gold mines. Only one investment will be made. The Australian gold mine will cost $1,677,000 and will produce $385,000 per year in years 5 through 15 and $529,000 per year in years 16 through 25. The US. gold mine will cost $2,036,000 and will produce $299,000 per year for the next 25 years. The cost of capital is 7 percent. Use Appendix D for an approximate answer but calculate your nal answers using the formula and financial calculator methods. (Note: In looking up present value factors for this problem, you need to work with the concept of a deferred annuity for the Australian mine. The returns in years 5 through 15 actually represent 11 years; the returns in years 16 through 25 represent 10 years.) a-1. Calculate the net present value for each project. {Do nor: round intermediate calculations and round your answers to 2 decimal places.) Net Present Value The Australian mine The U5. mine a-2. Which investment should be made? 0 Australian mine 0 U.S. mine 24 points EBDOK le11 Print a-2. Which investment should be made? 0 Australian mine 0 U.S. mine b-1. Assume the Australian minejustifles an extra 5 percent premium over the normal cost of capital because of its riskiness and relative uncertainty of cash flows. Calculate the new net present value given this assumption. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.) Net Present Value The Australian mine b-Z. Does the new assumption change the investment decision? 0 yes 0 No A-8 Appendix D Present value of an annuity of $1, PV IFA PVA = A 1- (1+ i)" Percent Period 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 1.970 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736 1.713 1.690 3 .. 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2.444 2.402 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.102 3.037 4.............. 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.696 3.605 5.795 5.601 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4.355 4.231 4.111 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.712 4.564 7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 5.146 4.968 8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.995 5.759 5.537 5.328 10 9.471 8.983 8.530 8. 111 7.722 7.360 7.024 6.710 6.418 6.145 5.889 5.650 11 10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 6.207 5.938 6.194 12 ...... 11.255 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814 6.492 13 ..... 12.134 11.348 10.635 9.986 9.394 8.853 8.358 7.904 7.487 7.103 6.750 6.424 14 . 13.004 12. 106 11.296 10.563 9.899 9.295 8.745 8.244 7.786 7.367 6.982 6.628 13.865 12.849 11.938 11.118 10.380 9.712 9.108 8.559 8.061 7.606 7.191 6.811 16 14.718 13.578 12.561 11.652 10.838 10.106 9.447 8.851 8.313 7.824 7.379 6.974 17 15.562 14.292 13.166 12.166 1 1.274 10.477 9.763 9.122 8.544 8.022 7.549 7.120 18 ...... 16.398 14.992 13.754 12.659 11.690 10.828 10.059 9.372 8.756 8.201 7.702 7.250 17.226 15.678 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365 7.839 7.366 20 2.. 18.046 16.351 14.877 13.590 12.462 11.470 10.594 9.818 9.129 8.514 7.963 7.469 25 . 22.023 19.523 17.413 15.622 14.094 12.783 11.654 10.675 9.823 9.077 8.422 7.843 30 25.808 22.396 19.600 17.292 15.372 13.765 12.409 11.258 10.274 9.427 8.694 8.055 40 32.835 27.355 23.115 19.793 17.159 15.046 13.332 11.925 10.757 9.779 8.951 8.244 50 39.196 31.424 25.730 21.482 18.256 15.762 13.801 12.233 10.962 9.915 9.042 8.304\f