Management of a firm with a cost of capital of 8 percent is considering a $102,000 investment with annual cash flow of $41,016 for three years. Use Appendix A and Appendix D to answer the questions.
a) What are the investments net present value and internal rate of return? Use a minus sign to enter a negative value, if any. Round your answers for the net present value to the nearest dollar and for the internal rate of return to the nearest whole number.
NPV: $_____
IRR: _____%
b) The internal rate of return assumes that each cash flow is reinvested at the internal rate of return. If that reinvestment rate is achieved, what is the total value of the cash flows at the end of the third year? Use the rounded internal rate of return from part a. Round your answer to the nearest dollar.
$ _____
c) The net present value technique assumes that each cash flow is reinvested at the firms cost of capital. What would be the total value of the cash flows at the end of the third year, if the funds are reinvested at the firms cost of capital? Round your answer to the nearest dollar.
$_____
Interest Factors for the Future Value of One Dollar Time Period APPENDIXA year) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 12% 14% 15% 16% 18% 20% 1 1.010 1.020 030 1.040 1.050 1060 .070 080 1090 1.100 .120 .140 1.150 1.160 .180 1.200 2 .020 1.040 .061 1.082 1.102 124 1.145 .166 188 .210 1.254 1.300 322 1.346 .39 .440 3 1.030 1.061 1.093 1.125 1.158 .191 225 1.260 1295 1.331 1.405 1482 1.521 1.56 643 1.728 4 1.041 1.082 1.126 1.170 1.216 .262 .311 .360 1.412 464 .574 1.689 1.749 1.811 .939 2.074 5 1.051 1.104 1.159 1.217 1.276 1.338 1.403 469 1.539 .611 .762 1925 2011 2.100 2.288 2.488 9 6 1.062 1.126 1.194 1.265 1.340 1.49 .501 .587 .677 772 1974 2.195 2.313 2.436 .697 2.986 7 1.072 1.149 1.230 1.316 1.407 1.504 606 1.714 1.828 1.949 2.211 2.502 2.660 2.826 3.186 3.583 8 1.083 .172 1.267 1.369 1.477 .594 1.718 .85 1.993 2.144 2.476 2.853 3.059 3.278 3.759 4.300 9 1.094 1.195 1.305 1.423 .55 .689 1838 1.999 2.172 2.358 2.773 3.252 3.518 3.803 4.436 5.160 10 1.105 1.219 1.344 1.480 1.629 1.791 1967 2.159 2.367 2.594 3.106 3.707 4.046 4.411 5.234 6.192 4 11 1.116 1.243 1.384 1.539 1.710 1.898 2.105 2.332 2.580 2.853 3.479 4.226 4.652 5.17 6.176 7.430 12 1.127 1.268 1.426 1.601 1.796 2.012 2.252 2.518 2.813 3.138 3.896 4.818 5.350 5.936 7.287 8.916 13 1.138 1.294 1.469 1.665 1.886 2.133 2.410 2.720 3.066 3.452 4.363 5.492 6.153 6.886 8.5 10.699 14 149 1.319 1.513 1.732 1.980 2.261 2.579 2.937 3.342 3.797 4.887 6.261 7.076 7.988 10.147 12.839 15 1.16 1.346 1.558 1.801 2.079 2.397 2.759 3.172 3.642 4.177 5.474 7.138 8.137 9.266 1973 15.407 16 1.173 1.373 1.605 1.873 2.183 2.540 2.952 3.426 3.970 4.595 6.130 8.137 9.358 10.748 14.129 18.488 17 1.184 1.400 1.653 1948 2.292 2.693 3.159 3.700 4.328 5.054 6.866 9.276 10.761 12.468 16.672 22.186 18 1.196 1.428 1.702 2.026 2.407 2.854 3.380 3.996 4.717 5.560 7.690 10.575 12.375 14.463 9.673 26.623 19 1.208 1.457 1.754 2.107 2.527 3.026 3.617 4.316 5.142 6.116 8.613 12.056 14.232 16.777 23.214 31.948 20 1.220 1.486 1.806 2.191 2.653 3.207 3.870 4.661 5.604 6.728 9.646 13.743 16.367 19.461 27.393 38.337 2 25 1.282 1.641 2.094 2.666 3.386 4.292 5.427 6.848 8.623 10.835 17.000 26.462 32.919 40.874 62.688 95.396 30 1.348 1.811 2.427 3.243 4.322 5.743 7.612 10.063 13.268 17.449 29.960 50.950 66.212 85.850 143.370 237.370 Interest Factors for the Present Value of an Annuity of One Dollar Time Period APPENDIX D year) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 12% 14% 16% 18% 20% 24% 28% 32% 36% 10.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.893 0.877 0.862 0.847 0.833 0.806 0.781 0.758 0.735 2 1.970 1.942 1.913 1.886 1.859 1.833 1.8081.783 1.759 1.736 1.690 1.647 1.605 1.566 .528 1.457 1.392 1.332 1.276 3 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2.402 2.322 2.246 2.174 2.106 1.981 1.868 1.766 1.674 4 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.037 2.914 2.798 2.690 2.589 2.404 2.241 2.096 1.966 5 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.605 3.433 3.274 3.127 2.991 2.745 2.532 2.345 2.181 6 5.795 5.601 5.417 5.242 5.076 4.917 4.766 4.623 4.486 4.355 4.111 3.889 3.685 3.498 3.326 3.020 2.759 2.534 2.399 7 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.564 4.288 4.039 3.812 3.605 3.242 2.937 2.678 2.455 8 7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 4.968 4.639 4.344 4.078 3.837 3.421 3.076 2.786 2.540 9 8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.2475.985 5.759 5.328 4.946 4.607 4.303 4.031 3.566 3.184 2.868 2.603 10 9.471 8.983 8.530 811 7.722 7.360 7.024 6.710 6.418 6.145 5.650 5.216 4.833 4.494 4.193 3.682 3.269 2.930 2.650 11 10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 5.988 5.453 5.029 4.656 4.327 3.776 3.335 2.978 2.683 12 11.255 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814 6.194 5.660 5.197 4.793 4.439 3.851 3.387 3.013 2.708 13 12.134 11.348 10.635 9.986 9.394 8.534 8.358 7.904 7.487 7.103 6.424 5.842 5.342 4.910 4.533 3.912 3.427 3.040 2.727 14 13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.244 7.786 7.367 6.628 6.002 5.468 5.008 4.611 3.962 3.459 3.061 2.740 15 13.865 12.849 11.938 11.118 10.380 9.712 9.108 8.559 8.060 7.606 6.811 6.142 5.575 5.092 4.675 4.001 3.483 3.076 2.750 16 14.718 13.578 12.561 11.652 10.838 10.106 9.447 8.851 8.312 7.824 6.974 6.265 5.669 5.162 4.730 4.003 3.503 3.088 2.758 17 15.562 14.292 13.166 12.166 11.274 10.477 9.763 9.122 8.544 8.002 7.120 6.373 5.749 5.222 4.775 4.059 3.518 3.097 2.763 18 16.398 14.992 13.754 12.659 11.690 10.828 10.059 9.372 8.756 8.201 7.250 6.467 5.818 5.273 4.812 4.080 3.529 3.104 2.767 19 17.226 15.678 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365 7.366 6.550 5.877 5.316 4.844 4.097 3.539 3.109 2.770 20 18.046 16.351 14.877 13.590 12.462 11.470 10.594 9.818 9.128 8.514 7.469 6.623 5.929 5.353 4.870 4.110 3.546 3.113 2.772 25 22.023 19.523 17.413 15.622 14.094 12.783 11.654 10.675 9.823 9.077 7.843 6.873 6.097 5.467 4.948 4.147 3.564 3.122 2.776 30 25.808 22.937 19.600 17.292 15.373 13.765 12.409 11.258 10.274 9.427 8.055 7.003 6.177 5.517 4.979 4.160 3.569 3.124 2.778
