Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

If you insulate your office for $25,000, you will save $2,500 a year in heating expenses. These savings will last forever. a. What is the

If you insulate your office for $25,000, you will save $2,500 a year in heating expenses. These savings will last forever.

a.What is the NPV of the investment when the cost of capital is 4%? 10%?

b.What is the IRR of the investment?(Enter your answer as a whole percent.)

c.What is the payback period on this investment?

Here are the expected cash flows for three projects:

Cash Flows (dollars)

Project Year: 0 1 2 3 4

A 5,500 +1,125 +1,125 +3,250 0

B 1,500 0 +1,500 +2,250 +3,250

C 5,500 +1,125 +1,125 +3,250 +5,250

a.What is the payback period on each of the projects?

b.If you use a cutoff period of 2 years, which projects would you accept?

Project A

Project B

Project C

Project A and Project B

Project B and Project C

Project A and Project C

Projects A, B, and C

None

c.If you use a cutoff period of 3 years, which projects would you accept?

Project A

Project B

Project C

Project A and Project B

Project B and Project C

Project A and Project C

Projects A, B, and C

None

d-1.If the opportunity cost of capital is 11%, calculate the NPV for projects A, B, and C.(Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.)

d-2.Which projects have positive NPVs?

Project A

Project B

Project C

Project A and Project B

Project B and Project C

Project A and Project C

Projects A, B, and C

None

e."Payback gives too much weight to cash flows that occur after the cutoff date." True or false?

True

False

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

Financial Markets and Institutions

Authors: Frederic S. Mishkin, Stanley G. Eakins

8th edition

013342362X, 978-0133423624

Students also viewed these Finance questions