Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

H Problem 8.15 Your factory has been offered a contract to produce a part for a new printer. The contract would be for three years

image text in transcribed
H Problem 8.15 Your factory has been offered a contract to produce a part for a new printer. The contract would be for three years and your cash flows from the contract would be $5 million per year. Your up-front setup costs to be ready to produce the part would be $8 million. You cost of capital for this contract is 8%. Complete the steps below using cell references to given data or previous calculations. In some cases, a simple cell reference is all you need. To copy/paste a formula across a row or down a column, an absolute cell reference or a mixed cell reference may be preferred. If a specific Excel function is to be used the directions will specify the use of that function. Do not npe in mumerical data into a cell or function. Instead, make a reference to the cell in which the data is found. Make your computations only in the blue cells highlighted below. In all cases, unless otherwise directed, use the earliest appearance of the data in pour formulas, usually the Given Data section 1. What does the NPV rule say you should do? 1. What does the IRR nule say you should do? c. Does the IRR rule agree with the NPV rule in this case? 9 10 Initial investment (million) Annual cash flow (million) Number of periods (years) Cost of capital s s 11 12 13 8 5 3 896 2. What does the NPV rule say you should do? 14 15 16 17 18 19 20 21 NPV (million) Make investment (Yes/No) + b. What does the IRR rule say you should do? IRR Make investment (Yes/No) 24 c. Does the IRR rule agree with the NPV rule in this case? 25 20 NPV & IRR agree (Yes/No) No 27 28 23 Requirements 1 In cell D16, by using the PV fiction and cell references, calculate the NPV of the project. Note: Do 30 not use the [V] and [type]rguments in the PV function (1 pr.) 31 2 In cell D17type Yes or No depending on whether you would take the project or not (1 pt.). 3 In cell D21, by using the RATE function and cell references, calculate the IRR of the project (1 p.) 4 In cell 22. type Yes or No depending on whether you would take the project or not (pt.). 5 In cell D26. type Yes or No depending on whether the NPV rule agrees with the IRR role in this case (1 pt.) 34 8-15

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Experiences With Financial Liberalization

Authors: K. L. Gupta

1st Edition

079239853X, 978-0792398530

More Books

Students also viewed these Finance questions