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    Chap 2 On-Line Assignment Ans

    Uploaded by

    jimmy_chou1314
    This document contains information and calculations for several questions related to capital budgeting decisions. Question 2 provides details on a fiber cable investment including costs, call capacity, revenue per minute, annual income, and payback period. Question 3 calculates how much an auto manufacturer should be willing to spend to keep customers satisfied based on vehicle costs, profit margins, and discounted cash flows over 30 years. Question 4 shows a cash flow table and NPV calculations at different discount rates. The final problem compares the NPV of a housing development alone versus adding a golf course using sales projections, costs, tax rates, and discounted cash flows over 8 years.

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    Chap 2 On-Line Assignment Ans

    Uploaded by

    jimmy_chou1314
    15 views5 pages
    This document contains information and calculations for several questions related to capital budgeting decisions. Question 2 provides details on a fiber cable investment including costs, call capacity, revenue per minute, annual income, and payback period. Question 3 calculates how much an auto manufacturer should be willing to spend to keep customers satisfied based on vehicle costs, profit margins, and discounted cash flows over 30 years. Question 4 shows a cash flow table and NPV calculations at different discount rates. The final problem compares the NPV of a housing development alone versus adding a golf course using sales projections, costs, tax rates, and discounted cash flows over 8 years.

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    Chap 2 on-line Assignment Ans

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    This document contains information and calculations for several questions related to capital budgeting decisions. Question 2 provides details on a fiber cable investment including costs, call capacity, revenue per minute, annual income, and payback period. Question 3 calculates how much an auto manufacturer should be willing to spend to keep customers satisfied based on vehicle costs, profit margins, and discounted cash flows over 30 years. Question 4 shows a cash flow table and NPV calculations at different discount rates. The final problem compares the NPV of a housing development alone versus adding a golf course using sales projections, costs, tax rates, and discounted cash flows over 8 years.

    Copyright:

    © All Rights Reserved
    Download as XLS, PDF, TXT or read online from Scribd
    Download as xls, pdf, or txt
    15 views5 pages

    Chap 2 On-Line Assignment Ans

    Uploaded by

    jimmy_chou1314
    This document contains information and calculations for several questions related to capital budgeting decisions. Question 2 provides details on a fiber cable investment including costs, call capacity, revenue per minute, annual income, and payback period. Question 3 calculates how much an auto manufacturer should be willing to spend to keep customers satisfied based on vehicle costs, profit margins, and discounted cash flows over 30 years. Question 4 shows a cash flow table and NPV calculations at different discount rates. The final problem compares the NPV of a housing development alone versus adding a golf course using sales projections, costs, tax rates, and discounted cash flows over 8 years.

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    © All Rights Reserved
    Download as XLS, PDF, TXT or read online from Scribd
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    a

    b
    c
    d
    e

    Chapter 2-On-line assignment


    Question 2
    Info:
    Fiber cable cost-given
    Calls handled simultaneously-given
    Use 1/2 of it's capacity (1/2 of b)-stated
    Nets per call-given
    available minutes in a year (60x24x365)

    Nets 1 cent per minute (avail mins x amt (net) per


    f call
    g income (cxf)
    h annual payback = (income / fiber cable cost)

    $400,000,000
    80,000
    40,000
    0.01
    525,600
    5,256
    $210,240,000
    53%

    Chapter 2-On-line assignment


    Question 3
    Info:
    Car cost

    $15,000

    Purchase a car every 3 years, 10 cars in 30 years (1 car/ 30 yr


    period)
    average price of car
    Net profit margin of car
    Discount rate

    $15,000
    20%
    9%

    How much should an auto mfg be willing to spend to keep its


    customers satifisfied?
    Cost of car
    Profit margin @ 20%

    $15,000
    3,000

    At a 20% profit margin, the auto company will earn an


    annuity of about $3,000 every 3 yrs, for 30 yrs
    Profit Margin
    PVIFA (for 9% interest rate, 30 yrs)
    result

    $3,000
    10.2737
    30,821

    since every 3 years, can divide by 3; this is the amount that the
    auto mfg can spend

    $10,274

    An investment to keep the customers satisfied will have a


    positive NPV as long as the amount spent is less than 10,274.
    Thus the auto mfg should be willing to spend up to 10,274 in
    present value terms to keep it's customers satisfied.

    http://www.miniwebtool.com/pvifa-calculator/?r=15&n=20
    PV interest factor of an annuity
    PVIFA for 9% interest rate, 30 years
    10.2737

    PV =

    $9,402

    FV =
    n=
    payment

    0
    10
    $3,000

    interest rate

    1.295029

    29.50%

    Chapter 2-On-line assignment


    Question 4
    Info:
    given

    Year

    Cash Flow PV@0%

    PV@100% PV@200%

    1 (1,200.00) (1,200.00) (600.00)


    2 7,200.00 7,200.00 1,800.00
    3
    ###
    ### (1,650.00)
    4 7,200.00 7,200.00
    450.00
    Total
    0.00
    0.00
    0.00

    (400.00)
    800.00
    (488.89)
    88.89
    0.00

    To demonstrate that an IRR calculation is valid, compute the NPV at the IRR
    A valid IRR yields NPV = 0

    Chapter 2-On-line assignment


    Problem 3
    Info:
    Housing
    Only

    Annual Sales
    Ann. Amortization (of the cost)
    Ann. Pretax Profit
    Tax @ 40%
    Ann. After Tax Profit
    add bac: Depre/Amort
    CF
    PVIFA (r-14%, n=8)
    PV
    Cost
    NPV

    With Golf
    Course

    Housing: sell 75 lots per year at 90K per


    lot; Golf Course: sell 75 lots at
    6,750,000 10,500,000 140K/acre
    3,750,000 4,500,000 Cost/8 yrs
    3,000,000 6,000,000
    1,200,000 2,400,000
    1,800,000 3,600,000
    3,750,000 4,500,000
    5,550,000 8,100,000
    4.63890
    4.63890 http://www.miniwebtool.com/pvifa-calculator/?r=14&n=8
    25,745,895 37,575,090
    30,000,000 36,000,000 given
    (4,254,105) 1,575,090

    a). At required return of 14%, should he proceed with housing only?


    NO, as negative NPV

    b). Should he put in the golf course?


    YES, as positive NPV

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