TI Calculator Graded Problem Set

You are evaluating a proposed project for your company. The project is expected to generate the following end$-$of$-$year cash flows:

You have been told you should evaluate this project with an interest rate of $9\%.$ What is the project's NPV$?$

Incorrect $$51\mathrm{.}43$

$$135\mathrm{.}60$

$$219\mathrm{.}77$

$$151\mathrm{.}80$

$$119\mathrm{.}39$

Points:

$0/1$

Enter the values into the CF worksheet.

CFo $=-3,000$

C$01=300$

F$01=1$

C$02=500$

F$02=1$

C$03=600$

F$03=2$

C$04=800$

F$04=3$

C$05=200$

F$05=1$

I$/$Y $=9,$ compute NPV $=119\mathrm{.}39.$

Your group leader has now told you that the risk of the project was understated before. As a result, she tells you to recalculate the project$$s NPV with an $11\%$ interest rate. What is the new NPV$?$

$-$$$104\mathrm{.}13$

Incorrect $-$$$190\mathrm{.}92$

$-$$$115\mathrm{.}38$

$-$$$28\mathrm{.}59$

$-$$$109\mathrm{.}76$

Points:

$0/1$

Keep the values in the CF worksheet and use I$/$Y $=11$ to solve for NPV $=-$$$115\mathrm{.}38.$

When the project was first evaluated at $9\%,$ you would have advised that the company accept Correct the project because it added Correct value for the company. But now with an $11\%$ interest rate, you will advise the company to reject Correct the project because it loses Correct value for the company.

Points:

$1/1$

If a project has a negative NPV$,$ it fails to properly compensate the investor $($a firm in this case$)$ for the required investment. That means you want to accept positive NPV projects because they add value and reject negative NPV projects because they lose value.

Calculate the project$$s internal rate of return $($IRR$).$

$15\mathrm{.}08\%$

Incorrect $9\mathrm{.}41\%$

$10\mathrm{.}01\%$

$9\mathrm{.}99\%$

$14\mathrm{.}76\%$

Points:

$0/1$

Keeping the cash flows in the CF worksheet, press IRR CPT to solve for IRR $=9\mathrm{.}99($or $9\mathrm{.}99\%).$ This is the rate of return at which the project breaks even $($its NPV $=0).$