1.
Yourfirmisconsideringinvestinganewtrucktobeusedtomakedeliveries.The truckcosts$40,000andhasanexpectedusefullifeof10years.Thediscount
rate for an investment of this
nature is8%.

a. Ifthetruckisexpectedtogenerateoperatingcashinflowsof$6,000peryear,
would you recommend your firm pursue this investmentopportunity?

b. Ifthetruckisexpectedtogenerateoperating
cashinflowsof$6,000peryear ANDhaveasalvagevaluein10yearsof$5,000,would
yourecommendyour firm
pursue this investmentopportunity?

2. You work for a company with
the following projects underconsideration:

Cashflows($)

ProjectYear

0

1

2

3

4

5

A

-3,100

800

800

800

800

800

B

-1,500

400

400

400

400

400

C

-5,000

1,300

1,300

1,300

1,300

1,300

The
discount rate for these projects is8%.

a. Which, if any, of these
projects would you recommend your companypursue?

b. Ifyourcompanyonlyhas$5,000
toinvest,whatisyourrecommendationasto
how to invest thatcapital?

3.
You work for a company considering
purchasing assets that are expectedto
generatecashinflowsof$15mperyearfor15years.Theassetscost$100m.
Investments of this nature have a discount rate of12%.

a. What is the payback period of
this investmentopportunity?

b. If
your company has a policy of rejecting investment opportunities that havea payback
period greater than 5 years, wouldyou
accept thisinvestment opportunity?

c. Shouldyou accept this investmentopportunity?

d. Describe
the calculation necessary to compute the Internal Rate of Return(IRR) of
this investmentopportunity.

e. Use Excel to compute the IRR
of this investmentopportunity.1.
Yourfirmisconsideringinvestinganewtrucktobeusedtomakedeliveries.The truckcosts$40,000andhasanexpectedusefullifeof10years.Thediscount
rate for an investment of this
nature is8%.a. Ifthetruckisexpectedtogenerateoperatingcashinflowsof$6,000peryear,
would you recommend your firm pursue this investmentopportunity?b. Ifthetruckisexpectedtogenerateoperating
cashinflowsof$6,000peryear ANDhaveasalvagevaluein10yearsof$5,000,would
yourecommendyour firm
pursue this investmentopportunity?2. You work for a company with
the following projects underconsideration:Cashflows($)ProjectYear012345A-3,100800800800800800B-1,500400400400400400C-5,0001,3001,3001,3001,3001,300The
discount rate for these projects is8%.a. Which, if any, of these
projects would you recommend your companypursue?b. Ifyourcompanyonlyhas$5,000
toinvest,whatisyourrecommendationasto
how to invest thatcapital?3.
You work for a company considering
purchasing assets that are expectedto
generatecashinflowsof$15mperyearfor15years.Theassetscost$100m.
Investments of this nature have a discount rate of12%.a. What is the payback period of
this investmentopportunity?b. If
your company has a policy of rejecting investment opportunities that havea payback
period greater than 5 years, wouldyou
accept thisinvestment opportunity?c. Shouldyou accept this investmentopportunity?d. Describe
the calculation necessary to compute the Internal Rate of Return(IRR) of
this investmentopportunity.e. Use Excel to compute the IRR
of this investmentopportunity.