Posted: September 18th, 2017

Calculate the correct answer in all problems

USE NPV, Rate, and IRR Functions as appropriate in Problems 4b, 4d. 4e, 5, and 8

Explain in words what you do to make each calculation

Explain in words what the answers mean

Points

1

10

2-A 3

2-B

7

3 A company, West Berwick Enterprises, has a capital structure as follows:

Total Capital $1,000,000

Debt $400,000

Preferred Stock $100,000

Common Equity $500,000

15

4

Net Cash Flow

Year Project A Project B

0 -$4,000,000 -$5,000,000

1 $800,000 $1,900,000

2 $1,000,000 $1,700,000

3 $1,200,000 $1,400,000

4 $1,400,000 $900,000

5 $1,600,000 $300,000

4-A Calculate the payback period for each project.

Project A Project B

6

4-B Calculate the net present value for each project.

Project A Project B

6

4-C Which project do you think will be approved, if only one project can be approved? Why?

Project A Project B

3

4-D What if the required rate of return was 10%?

Project A Project B

6

4-E What is the Internal rate of return?

Project A Project B 6

4-F Which is the best to use for deciding: Payback, NPV or IRR? Why? 8

5

6

6-A

6

6-B

6

7

6

8

6

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