Satisfactory Essays
C4-q28 A since the first payment begins at year 3,So t=2,t+1=3.and the present value of the annuity =\$5000/8%*[1-(1/1+8%)^(25-2)]
= \$51,855.29

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C5-q11 A:(1)IRR(DF):\$-750000+\$310000/(1+r)+\$430000(1+r)^2+
\$330000(1+r)^3=0
r=19.8253%
IRR(SR)=\$-2100000+\$1200000/(1+r)+\$760000(1+r)^2+\$850000/
(1+r)^3=0 r=17.3641% since r1>r2 project deepwater fishing should be chosen.
(2)incremental cash flow: initial investment: -\$1350000 year1:\$890000 year2:\$330000 year3: \$520000
IRR : \$-1350000+\$890000/(1+r)+\$330000/(1+r)^2+\$520000/(1+r)^3=0 r=15.76% since 15.76%>14% , project submarine ride should be chosen.
(3)NPV(df)=\$-750000+\$310000/(1+14%)+\$430000/(1+14%)^2+
\$330000/(1+14)^3
=\$75446.27
NPV(sr)=-\$2100000+\$1200000/(1+14%)+\$760000/(1+14)^2+
\$850000/(1+14)^3
=\$111571.28 sinceNPV(sr)>NPV(df) , project submarine ride project should be chosen. !
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C7-q4 A:financial break-even point: NPV of total revenues =NPV of total costs
Ct+1/12%*[1-1/(1+12%)^5]=\$250000
Ct+1=\$69352.43
Break-even point=[\$69352.43+\$360000*(1-34%)-\$50000*34%]/[(\$25-\$6)]
*(1-34%)=23122.20units=23123 units

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C8-q5 A:PV=€84/7.6%{1-[1/(1+7.6%)]^15}+€1000/(1+7.6%)^15
= €736.90+€333.29=€1070.19

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C9-q14 A: The third year’s dividend: \$2.4*(1+25%）^3=\$4.6875
The first three year’s present value is \$2.4*1.25/(.12-.25)*[1(1.25/1.12)^3]=\$9
The dividend from the fourth year to infinity is \$4.6875*(1+7%),
4.6875*(1+7%)^2……..
The value in year 3 from fourth year value to infinity is \$5.0156/(.12-.
07)=\$100.312
The present value of forth year to infinity is \$100.312/(1.12)^3=\$71.40
So the present value of the stock is \$71.40+\$9=\$80.40

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