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Part A You are buying a junkmobile for $2000. Dealer offers 2 options. Option 1: you pay cash and get 15% discount today. Option 2:
Part A
You are buying a junkmobile for $2000. Dealer offers 2 options. Option 1: you pay cash and get 15% discount today. Option 2: "0% financing". Specifically, you pay nothing today,a nd pay full price of $2000 in 1 year. On the other hand, a bank would loan you money for 10%. If you don't have money today, would you take dealer's 0% financing or bank loan? Please answer the question with supporting work | ||||
List price of junkmobile | 2,000.00 | |||
cash payment discount | 15% | |||
Bank rate of interest | 10% | |||
Year | Payment in cash | Payment with credit | ||
0 | -1,700.00 | 0.00 | ||
1 | -2,000.00 |
|
Part B
Calculate the crossover rate | |||
Year | Project A | Project B | Differential Cash Flow |
0 | -500 | -500 | |
1 | 167 | 200 | |
2 | 180 | 250 | |
3 | 160 | 170 | |
4 | 100 | 25 | |
5 | 100 | 30 | |
corssover rate |
Part 2
The following table presents the cash flows of a project | |||
Year | Project A | ||
0 | -30,000 | ||
1 | 35,000 | ||
2 | -15,000 | ||
3 | 17,000 | ||
4 | 7,500 | ||
5 | 10,000 | ||
6 | 10,000 | ||
7 | 10,000 | ||
8 | -50,000 | ||
9 | 1,000 | ||
10 | 1,000 | ||
Part A. Graph the NPVs of the project using different discount rates. Use this graph to approximately identify the different IRRs. | |||
Interest rate | NPV B | ||
0% | |||
1% | |||
2% | |||
3% | |||
4% | |||
5% | |||
6% | |||
7% | |||
8% | |||
9% | |||
10% | |||
11% | |||
12% | |||
13% | |||
14% | |||
15% | |||
16% | |||
17% | |||
18% | |||
19% | |||
20% | |||
21% | |||
22% | |||
23% | |||
24% | |||
25% | |||
26% | |||
27% | |||
28% | |||
29% | |||
30% | |||
31% | |||
32% | |||
33% | |||
34% | |||
35% | |||
36% | |||
37% | |||
38% | |||
39% | |||
40% | |||
Part B. Use Excel's IRR function with its "Guess" option to identify projects exact IRRs. | |||
IRR1 | |||
IRR2 |
These answers need to be done in excel and could you please give me the equations and functions that were used in the answers thank you very much.
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