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October 23, 2014

Homework Help: Finance

Posted by A on Sunday, November 4, 2007 at 2:20pm.

Q1:You wish to start a sproject.Your initial investment is$100000. You generate 0cashflows for first2years but$16000in year3&increase by15%every year till year7,after which time they decline by2%until year9.You expect0growth in cash flows beyond yaer9, but expect to generate constant cashflows into the foreseeable future. If capital cost=8% per year.
ANS:NPV=$168609.42

Q2:You want to buy new machine&replace the existing machine, which you have used for the past3years.New machine costs$75000&will be useful for5years after which can be sold to fetch salvage value of$9000.New machine will be depreciated straight-line 0over5years.Old machine was bought for$70000&also depreciates straight-line to0over5years.Old machine can be sold today for$30000but worth$6500in5years.
New machine is efficient. Annual savings in operating costs are $12000.Your net working capital requirement will decline annually by $4000.Tax at rate is35%&has capital cost rate of12%
ANS:NPV(replacing)=$9598.75

Please show me detailed step by step solutions. Thanks.

(from Fundamentals of Corporate Finance - McGraw-Hill)

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