Chapter 6 Investment Decision Rules
Download as PPTX, PDF0 likes812 views
This document discusses investment decision rules and calculations for projects A and B. It provides the calculations to determine the payback period for Project B is closest to 2.4 years. It also shows the calculations for the internal rate of return (IRR) of Project A being closest to 21.6% and Project B being closest to 23.3%. Based on the IRR and net present value calculations shown, the document states you should accept Project A since its IRR is greater than 15%. The final question discusses an investment in an automated forklift system using the economic value added (EVA) rule and determines the project should not be accepted since the EVA is negative.
![Answer: NOBecause the EVA is negative, we will not take the project.152304250-500250250250250Depreciation = 5000005= 100000NPV = (-500000)+1250008%[1-1(1.08)5] =-911.245](https://image.slidesharecdn.com/t6-101211012138-phpapp02/85/Chapter-6-Investment-Decision-Rules-11-320.jpg)
Chapter 6 Investment Decision Rules
- 1. Investment Decision Rules952741 張芥華 982733 邱怡甯971921 王群婷 982619 潘維揚971925 楊智惟
- 2. (11)The payback period for project B is closest to2.5 years2.0 years2.2 years2.4 years
- 4. (12) The IRR for project A is closest to7.7%21.6%23.3%42.9%
- 6. (13) The IRR for project B is closest to21.6%23.3%42.9%7.7%
- 8. (14) Which of the following statements is correct?You should accept project A since its IRR > 15% You should reject project B since its NPV > 0Your should accept project A since its NPV < 0You should accept project B since its IRR < 15%
- 9. Answer: (A)𝑁𝑃𝑉𝐴=12.041𝑁𝑃𝑉𝐵=12.649 𝐼𝑅𝑅𝐴=21.648%𝐼𝑅𝑅𝐵=23.336% (B) You can accept project B since NPV>0(C) You can accept project A since NPV>0(D) You should deny project B since its IRR >15%
- 10. (15) EVAYou are considering purchasing a new automated forklift system for your firm's warehouse. The automated forklift will cost $500,000 and generate cash flows of $125,000 per year. The forklift will depreciate evenly over the five years, at which point it must be replaced. The cost of capital is 8% per year. Based upon the EVA investment rule, should you invest in the automated forklift?
- 11. Answer: NOBecause the EVA is negative, we will not take the project.152304250-500250250250250Depreciation = 5000005= 100000NPV = (-500000)+1250008%[1-1(1.08)5] =-911.245
- 12. EVA0 1 2 3 4 50125(8)(100)17CapitalCash flowCapital changeDepreciationEVA500400125(40)(100)-15300125(32)(100)-7200125(24)(100)1100125(16)(100)9PV of EVA(−15)1.08+(−7)1.082+11.083+91.084+171.085= -0.912