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JHU Financial and Contract Management Module 9 Assignment

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Management
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Johns Hopkins University
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Basis: Block, S.B.G .A.Hirt, and B.R. Danielsen, "Foundations of Financial Management", McGraw-Hill.
Module 9 Assignment (V2Aug16)
595.466 Financial and Contract Management
Problems are to be solved using either the tables or TVM formulas discussed in the lectures.
Calculate IRR problems using the 4-step process and interpolation.
Standard uses of Excel (rack & stack, embedding the above TVM formulas in a cell, etc.) are OK.
Do not use Excel functions eg. =+NPV(rate,cash flow values) or financial calculators.
1. The Hutchins Company makes an investment of $15,600 that provides the following cash flows:
___________________________________
Year Cash Flows
1 $7,500
2 7,000
3 4,500
a. What is the net present value at a 10 percent discount rate?
b. What is the internal rate of return? (Please use the interpolation process to calculate the solution)
c. Assuming an 10% cost-of-capital rate, would you make the same decision for both part a and part b?
Answers:
a.
Total
Investment
$ 15,600.00
Rate (%)
10
Year
Cash Flow
PV_if @ 10%
Discounted Cash
Flows
1
$ 7,500.00
0.909
$ 6,818.18
2
$ 7,000.00
0.826
$ 5,785.12
3
$ 4,500.00
0.751
$ 3,380.92
Total Discounted Net Flows
$ 15,984.22
Total Investment
$ 15,600.00
Net Present Value
$ 384.22
b. Step 1
Year
Cash Flow
1
$ 7,500.00
2
$ 7,000.00
3
$ 4,500.00
Sum of CF
$ 19,000.00

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