must show set up, formulas, intermediate steps

Chapter 9 CFIN 5

9-1

Wandering RV is evaluating a capital budgeting project that is expected to generate $36,950 per year during its six-year life. If its required rate of return is 10 percent, what is the value of the project to Wandering RV?

9-2

Zebra Fashions is evaluating a capital budgeting project that should generate $104,400 per year for four years. (a) If its required rate of return is 16 percent, what is the value of the project to Zebra? (b) If Leopard Fashions evaluates the same project with its required rate of return of 12 percent, what will it determine the value of the project to be?

9-4

The CFO of HairBrain Stylists is evaluating a project that costs $42,000. The project will generate $11,000 each of the next five years. If HairBrains required rate of return is 9 percent, should the project be purchased?

9-5

What is the internal rate of return (IRR) of a project that costs $20,070 if it is expected to generate $8,500 per year for three years?

9-8

Kansas Furniture Corporation (KFC) is evaluating a capital budgeting project that costs $34,000 and is expected to generate after-tax cash flows equal to $14,150 per year for three years. KFCs required rate of return is 12 percent. Compute the projects (a) net present value (NPV) and (b) internal rate of return (IRR). (c) Should the project be purchased?

9-16

Compute the (a) net present value, (b) internal rate of return (IRR), and (c) discounted payback period (DPB) for each of the following projects. The firms required rate of return is 14 percent.

Year: 0

Project Alpha: $(270,000)

Project Beta $(300,000)

Year:1

Project Alpha: 120,000

Project Beta: 0

Year:2

Project Alpha 120,000

Project Beta (80,000)

Year: 3

Project Alpha: 120,000

Project Beta: 555,000

Which project(s) should be purchased if they are independent? Which project(s) should be purchased it they are mutually exclusive?