JHU Financial and Contract Management Module 9 Assignment

Content type

User Generated

Subject

Management

School

Johns Hopkins University

Type

Worksheet

Uploaded By

yrnaqebpbhgbpbeervn

Pages

5

Rating

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

Sign up to view the full document!