Name: Kenisha Manicksingh

Student ID: 2022071

Chapter 9 Review Solutions

1. CF0 = -350K
C01 = 50K
F01 = 10
C02 = 25K
F02 = 10
I=9
NPV = + 38.6K.
We should invest because the business is providing a positive NPV.

2. IRR = 10.81%. We should invest because IRR is more than required return of 9%.

3. PI = PV / Cost
= 388.7K / 350K = 1.11

4. PMT = 65K
N=3
I/Y = 10
PV = 86.5K
We should not invest as the project will need over 160K to get the return of 10%, which will be a
negative NPV project.

5. Year 1 to 3 CF = 105K
Year 1 to 4 CF = 165K.
Payback = 3 + 45 / 60 = 3.75 years

6. CF1 = 25K/1.07 = 23,364

CF2 = 35K/1.072= 30,570
CF3= 45K/1.073 = 36,734
CF4 = 60K/1.074= 45,773
CF5 = 60K/1.075= 42,777
Discount payback = 4 + (150,000-136,441)/42,777 = 4.32 years

7. Advantages of Payback: easy to understand, adjusts for uncertainty of later cash flows, biased
towards liquidity. Disadvantages of Payback: ignores the time value of money, requires an
arbitrary cutoff point, ignores cash flows beyond the cutoff date, biased against long-term
projects.

8.