Table 10.

25) Given the information in Table 10.1 and 15 percent cost of capital,
(a) compute the net present value.
(b) should the project be accepted?

ANSWER :

a).
Year Cash Flow PV
$ (2,500) $ (2,500)
1 $ 1,000 $ 869.57
2 $ 1,000 $ 756.14
3 $ 1,000 $ 657.52
4 $ 1,000 $ 571.75
5 $ 1,000 $ 497.18
NPV $ 852.16

b). Because the NPV is higher than 0, so the project shoul be accepted
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Table 10.2

26) Given the information in Table 10.2 and 15 percent cost of capital,
(a) compute the net present value.
(b) should the project be accepted?

ANSWER :
a.
Year Cash Flow PV
$ (100,000)
1 $ 25,000 $ 21,739.13
2 $ 10,000 $ 7,561.44
3 $ 50,000 $ 32,875.81
4 $ 10,000 $ 5,717.53
5 $ 10,000 $ 4,971.77
6 $ 60,000 $ 25,939.66
NPV $ (1,194.67)

b. The NPV is below zero so the project should be rejected

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10) Tangshan Mining Company is considering investing in a new mining project. The firm's cost of capital
is 12 percent and the project is expected to have an initial after-tax cost of $5,000,000. Furthermore, the
project is expected to provide after-tax operating cash flows of $2,500,000 in year 1, $2,300,000 in year 2,
$2,200,000 in year 3, and ($1,300,000) in year 4.
(a) Calculate the project's NPV.
(b) Calculate the project's IRR.
(c) Should the firm make the investment?

ANSWER :

a.
Year Cash Flow PV
$ (5,000,000)
1 $ 2,500,000 $ 2,232,142.86
2 $ 2,300,000 $ 1,833,545.92
3 $ 2,200,000 $ 1,565,916.55
4 $ (1,300,000) $ (826,173.50)
NPV $ (194,568.18)

b. IRR = 9%

c. No, Because the NPV is below zero & the IRR is Below the cost of capital