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Author Question: Walker & Campsey wants to invest in a new computer system, and management has narrowed the choice to ... (Read 63 times)

petersan

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on: Aug 7, 2023

Question 1

Van Auken Inc. is considering a project that has the following cash flows:

Year

 

Cash Flow

0

 –$1,000

1

 $500

2

 $200

3

 $400

4

 $400
   

The company’s WACC is 10%. What are the project’s payback, IRR, and NPV?


◦

payback = 2.25, IRR = 18.91%, NPV = $169


◦

payback = 2.25, IRR = 19.50%, NPV = $183


◦

payback = 2.75, IRR = 18.91%, NPV = $169


◦

payback = 2.75, IRR = 19.50%, NPV = $183



Question 2

Walker & Campsey wants to invest in a new computer system, and management has narrowed the choice to Systems A and B.

​

System A requires an up-front cost of $120,000, after which it generates positive after-tax cash flows of $80,000 at the end of each of the next 2 years. System B also requires an up-front cost of $120,000, after which it generates positive after-tax cash flows of $58,000 at the end of each of the next 3 years. The company’s cost of capital is 12%. Based on the equivalent annual annuity, which system will be chosen?


◦

A for $8,038.03


◦

B for $8,038.03


◦

A for $8,996.18


◦

B for $8,996.18

Financial Management: Theory and Practice ¦ Brigham, Ehrhardt, Gessaroli, Nason ¦ 4th Edition
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Marked as best answer by petersan on Aug 7, 2023

lactosetheintolerant

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Reply #1 on: Aug 7, 2023
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petersan

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Reply 2 on: Aug 7, 2023
Thanks for the timely response, appreciate it

amit

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Reply 3 on: Yesterday
Excellent

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