Question 1

Internal rate of returnFor the project shown in the followingtable,

Initial investment (CF0 $80,000

Year (t) Cash inflows (CFt)

1 $30,000

2 $45,000

3 $15,000

4 $30,000

5 $20,000

calculate the internal rate of return (IRR). Thenindicate, for theproject, the maximum cost of capital that the firm could have and still find the IRR acceptable.

Theproject's IRR is ______%. (Round to two decimalplaces.)

The maximum cost of capital that the firm could have and still find the IRR acceptable is

___________%. (Round to two decimalplaces.)

Question 2

NPV and EVAA project cost $1.3 million up front and will generate cash flows in perpetuity of $200,000. Thefirm's cost of capital is 13%.

a.Calculate theproject's NPV.

b.Calculate the annual EVA in a typical year.

c.Calculate the overall project EVA.

Question 3

NPVMutually exclusive projectsHook Industries is considering the replacement of one of its old metal stamping machines. Three alternative replacement machines are under consideration. The relevant cash flows associated with each are shown in the followingtable:

Initial investment (CF0) Machine A Machine B Machine C

$85,000 $60,000 $130,000

Year(t) Cash inflows (CFt)

1 $18,000 $12,000 $50,000

2 $18,000 $14,000 $30,000

3 $18,000 $16,000 $20,000

4 $18,000 $18,000 $20,000

5 $18,000 $20,000 $20,000

6 $18,000 $25,000 $30,000

7 $18,000 ___ $40,000

8 $18,000 ___ $50,000

Thefirm's cost of capital is 15%.

a.Calculate the net present value (NPV) of each press.

b.UsingNPV, evaluate the acceptability of each press.

c.Rank the presses from best to worst using NPV.

d.Calculate the profitability index(PI) for each press.

e.Rank the presses from best to worst using PI.