1. Company A is considering a new piece of equipment. It will cost $6,000 and will produce cash flows of $1,000

every year for the next 12 years (the first cash flow will be exactly one year from today).

1a) What is the NPV if the appropriate discount rate is 10%?

1b) What is the NPV if the appropriate discount rate is 12%?

1c) What is the NPV if the appropriate discount rate is 15%?

2. Using the new piece of equipment from question 1, if the company is able to invest in an upgrade which would

cost $1000 in year 5, but would increase the cash flows in years 6-12 to $2,000, what is the new NPV? (year 5 cash

flow is $0 and discount rate is 15%)

3. Company X is considering a piece of equipment that costs $3,000 and will produce cash flows of $1200 in each of

the next three years. What is the IRR of the project?

4. Company Z is considering a new machine. The machine will cost $1MM and will be depreciated on a straight line

basis for five years to a zero salvage value. Revenues from the machine are expected to be $800,000 per year and all

associated expenses are expected to be 50% of revenue. If the company is taxed at a rate of 34% and the appropriate

discount rate is 15%, will the company invest in this new machine?

4a) If the companys discount rate increases to 20%, will they invest in the machine?

4b) What is the IRR of the investment?