Project for Chapter 10

*Please identify CLEARLY the following parameters for every TVM solver (the one to be solved is to be left with a question mark). Pay attention to the signs on PV, PMT, and FV!!! N = ?, I/Y = ?, PV = ?, PMT = ?, FV = ? If you complete your work using Excel, please make sure I can find where the numbers come from. For example, show your work in the cell using =C2+C3. Please keep two decimal places for your final answers.

1. The Bolster Company is considering two mutually exclusive projects:

Year	Cash Flow A	Cash Flow B
0	-$100,000	-$100,000
1	31,250	0
2	31,250	0
3	31,250	0
4	31,250	0
5	31,250	200,000

The required rate of return on these projects is 12%.

a. What is each projects payback period?

b. What is each projects discounted payback period?

c. What is each projects net present value?

d. What is each projects internal rate of return?

e. Which project do you prefer, and why?

2. Your firm is considering investing in one of two mutually exclusive projects. Project A requires an initial outlay of $3,500 with expected future cash flows of $2,000 per year for the next three years. Project B requires an initial outlay of $2,500 with expected future cash flows of $1,500 per year for the next two years. The appropriate discount rate for your firm is 12%.

a. Draw the timeline of two chain cycles for project A. Compute the NPV of the two chain cycles for project A.

b. Draw the timeline of three chain cycles for project B. Compute the NPV of the three chain cycles for project B.

c. Which project would you recommend?