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Assignments 1 Watch the video lectures for chapter 6 2 Watch the Videos in the Etext for Chapter 6 3 If necessary, review Chapter 6 readings to go along with the lectures Points Ch06-FE-like problems 06-FE001 06-FE005 06-FE007 Explain your answer!!! 06-FE009 Explain your answer!! Ch06-Problems 06.01-PR005 You must solve for the IRR!!! 15 06.01-PR009 15 06.01-PR029 20 06.01-PR031 Hint on part D: There are two IRR's one is approximately 20 IRR=610%. Find the other IRR which is less than 25%. Hint on Part D: Since there is more than one IRR, how do you know if the project is acceptable? (PW at MARR) 06.01-PR037 15 06.02-PR011 15 Total 120 Hints for a good grade: 1. Put your name clearly at the top of the first page. 2. Submit only one document. The document should be in either doc, docx, or pdf format. 3. If you use pencil and paper, you will need to scan your work into a single document 4. If you choose to take pictures of your work with your phone, then those must be combined into one document. If the pictures are not legible, they will not be graded 5. If you want partial credit, you must show your work.06-FE005 WP A snow cone machine at an ice cream shop costs $15,000. The machine is expected to generate profits of $2,500 each year of its 10- year useful life. At the end of the 10 years the machine will have a salvage value of zero. Within what interest rate range does the IRR fall? a. Less than 10% b. 10% to 12% c. 12% to 14% d. Greater than 14% The next two questions are based on the following "present worth versus interest rate" graph for a well-behaved investment. Present Worth E B Interest Rate06-FE005 WP A snow cone machine at an ice cream shop costs $15,000. The machine is expected to generate profits of $2,500 each year of its 10- year useful life. At the end of the 10 years the machine will have a salvage value of zero. Within what interest rate range does the IRR fall? a. Less than 10% b. 10% to 12% c. 12% to 14% d. Greater than 14% The next two questions are based on the following "present worth versus interest rate" graph for a well-behaved investment. Present Worth E B Interest Rate06-FE009 WP If the IRR of Alternative A is 18%, the IRR of Alternative B is 16%, and MARR is 12%, which of the following is correct? a. Alternative B is preferred over alternative A b. Alternative A is preferred over alternative B c. Not enough information is given to determine which alternative is preferred d. Neither alternative A nor alternative B is acceptable06-FE009 WP If the IRR of Alternative A is 18%, the IRR of Alternative B is 16%, and MARR is 12%, which of the following is correct? a. Alternative B is preferred over alternative A b. Alternative A is preferred over alternative B c. Not enough information is given to determine which alternative is preferred d. Neither alternative A nor alternative B is acceptable06.01-PR005 WP Nu Things, Inc., is considering an investment in a business venture with the fol- lowing anticipated cash flow results: EOY Cash EOY Cash EOY Cash Flow Flow Flow O -$70,000 7 14,000 14 7,000 20,000 8 13,000 15 6,000 2 19,000 9 12,000 16 5,000 3 18,000 10 11,000 17 4,000 4 17,000 11 10,000 18 3,000 UI 16,000 12 9,000 19 2,000 6 15,000 13 8,000 20 1,000 Assume MARR is 20% per year. Based on an inter- nal rate of return analysis (1) determine the invest- ment's worth; (2) state whether or not your results indicate the investment should be undertaken; and (3) state the decision rule you used to arrive at this conclusion.06.01-PR005 WP Nu Things, Inc., is considering an investment in a business venture with the fol- lowing anticipated cash flow results: EOY Cash EOY Cash EOY Cash Flow Flow Flow O -$70,000 7 14,000 14 7,000 20,000 8 13,000 15 6,000 2 19,000 9 12,000 16 5,000 3 18,000 10 11,000 17 4,000 4 17,000 11 10,000 18 3,000 UI 16,000 12 9,000 19 2,000 6 15,000 13 8,000 20 1,000 Assume MARR is 20% per year. Based on an inter- nal rate of return analysis (1) determine the invest- ment's worth; (2) state whether or not your results indicate the investment should be undertaken; and (3) state the decision rule you used to arrive at this conclusion.06.01-PR031 WP Consider the following cash flow profile and assume MARR is 10%/ yr. EOY NCF EOY NCF O -$100 4 -$950 $800 5 $700 2 $750 6 -$800 w $900 a. What does Descartes' rule of signs tell us about the IRR(s) of this project? b. What does Norstrom's criterion tell us about the IRR(s) of this project? c. Determine the IRR(s) for this project. d. Is this project economically attractive?06.01-PR031 WP Consider the following cash flow profile and assume MARR is 10%/ yr. EOY NCF EOY NCF O -$100 4 -$950 $800 5 $700 2 $750 6 -$800 w $900 a. What does Descartes' rule of signs tell us about the IRR(s) of this project? b. What does Norstrom's criterion tell us about the IRR(s) of this project? c. Determine the IRR(s) for this project. d. Is this project economically attractive?06.01-PR029 Wp Consider the following cash flow profile and assume MARR is 10%/yr. EOY NCF EOY NCF O -$100 4 $15 $15 5 $15 2 $15 6 $15 3 $15 a. What does Descartes' rule of signs tell us about the IRR(s) of this project? b. What does Norstrom's criterion tell us about the IRR(s) of this project? c. Determine the IRR(s) for this project. d. Is this project economically attractive?06.01-PR029 Wp Consider the following cash flow profile and assume MARR is 10%/yr. EOY NCF EOY NCF O -$100 4 $15 $15 5 $15 2 $15 6 $15 3 $15 a. What does Descartes' rule of signs tell us about the IRR(s) of this project? b. What does Norstrom's criterion tell us about the IRR(s) of this project? c. Determine the IRR(s) for this project. d. Is this project economically attractive?06.01-PR037 ZeeZee's Construction Company has the opportunity to select one of four projects (A, B, C, or D) or the null (Do Nothing) alternative. Each project requires a single initial investment and has an internal rate of return as shown in the first table below. The second table shows the incremental IRR(s) for pairwise comparisons between each project and all other projects with a smaller initial investment. Investments and IRR(s) Project Initial Investment IRR Null $0 0.0% A $600,000 44.0% B $800,000 40.0% C $470,000 39.2% D $540,000 36.0% Incremental IRR(s) Increment Incremental IRR B-A 28.3% B-D 48.8% B-C 41.4% A-D 116.5% A-C 61.0% D-C 18.4%06.01-PR037 ZeeZee's Construction Company has the opportunity to select one of four projects (A, B, C, or D) or the null (Do Nothing) alternative. Each project requires a single initial investment and has an internal rate of return as shown in the first table below. The second table shows the incremental IRR(s) for pairwise comparisons between each project and all other projects with a smaller initial investment. Investments and IRR(s) Project Initial Investment IRR Null $0 0.0% A $600,000 44.0% B $800,000 40.0% C $470,000 39.2% D $540,000 36.0% Incremental IRR(s) Increment Incremental IRR B-A 28.3% B-D 48.8% B-C 41.4% A-D 116.5% A-C 61.0% D-C 18.4%06.02-PR011 Solve problem 06.01-PR019, except use the external rate of return approach.06.01-PR019 Smith Investors places $50,000 in an investment fund. One year after making the invest- ment, Smith receives $7,500 and continues to receive $7,500 annually until 10 such amounts are received. Smith receives nothing thher until 15 years after the initial investment, at which time $50,000 is received. Over the 15-year period, deter- mine the internal rate of return and Whether or not this is a desirable investment if MARR = 10%. IRR(s) for pairwise comparisons between each project and all other projects with a smaller initial + investment. Investments and IRR(s) Project Initial Investment IRR Null $0 0.0% A $600,000 44.0% B $800,000 40.0% C $470,000 39.2% D $540,000 36.0% Incremental IRR(s) Increment Incremental IRR B-A 28.3% B-D 48.8% B-C 41.4% A-D 116.5% A-C 61.0% D-C 18.4% For each of the values of MARR below indicate which project is preferred based on an incremental IRR analysis. a. MARR = 50%. b. MARR = 41%. C. MARR = 25%.IRR(s) for pairwise comparisons between each project and all other projects with a smaller initial + investment. Investments and IRR(s) Project Initial Investment IRR Null $0 0.0% A $600,000 44.0% B $800,000 40.0% C $470,000 39.2% D $540,000 36.0% Incremental IRR(s) Increment Incremental IRR B-A 28.3% B-D 48.8% B-C 41.4% A-D 116.5% A-C 61.0% D-C 18.4% For each of the values of MARR below indicate which project is preferred based on an incremental IRR analysis. a. MARR = 50%. b. MARR = 41%. C. MARR = 25%.06.01-PR009 DuraTech Manufacturing is evaluat ing a process improvement project. The estimated receipts and disbursements associated with the project are shown below. MARR is 6%/yr. End of Year Receipts Disbursements O $0 $5,000 $0 $200 2 $2,000 $300 w $4,000 $600 4 $3,000 $1,000 5 $1,600 $1,500 a. What is the internal rate of return of this investment? b. What is the decision rule for judging the attractiveness of investments based on internal rate of return? c. Should DuraTech implement the proposed process improvement?06.01-PR009 DuraTech Manufacturing is evaluat ing a process improvement project. The estimated receipts and disbursements associated with the project are shown below. MARR is 6%/yr. End of Year Receipts Disbursements O $0 $5,000 $0 $200 2 $2,000 $300 w $4,000 $600 4 $3,000 $1,000 5 $1,600 $1,500 a. What is the internal rate of return of this investment? b. What is the decision rule for judging the attractiveness of investments based on internal rate of return? c. Should DuraTech implement the proposed process improvement?FE-Like Problems 06-FE001 Consider the following cash ow diagram. What is the value of X if the internal rate of return is 15%? a. $246 b. $255 0. $281 (1. $290 06-FE007 WP The IRR of this investment is located at which point? a. A b. C C. D d. E06-FE007 WP The IRR of this investment is located at which point? a. A b. C C. D d. E