Question

Management of Franklin Mints, a confectioner, is considering purchasing a new jelly bean-making machine at a cost of $353,558. They project that the cash flows from this investment will be $150,100 for the next seven years. If the appropriate discount rate is 14 percent, what is the IRR that Franklin Mints management can expect on this project? (Round answer to 2 decimal places, e.g. 5.25%.)

Champlain Corp. management is investigating two computer systems. The Alpha 8300 costs $2,677,625 and will generate cost savings of $1,175,125 in each of the next five years. The Beta 2100 system costs $3,058,500 and will produce cost savings of $857,750 in the first three years and then $2 million for the next two years. If the company’s discount rate for similar projects is 14 percent:

What is the NPV for the two systems? (Enter negative amounts using negative sign, e.g. -45.25. Do not round discount factors. Round answers to 0 decimal places, e.g. 5,275.)

NPV of Alpha system		$
NPV of Beta system		$

Which one should be chosen based on the NPV?

Timeline Manufacturing Co. is evaluating two projects. The company uses payback criteria of three years or less. Project A has a cost of $989,940, and project B’s cost is $1,110,800. Cash flows from both projects are given in the following table.

Year		Project A		Project B
1		$86,212		$586,212
2		313,562		413,277
3		427,594		231,199
4		285,552

What are their discounted payback periods? (Round answers to 2 decimal places, e.g. 15.25. If discounted payback period exceeds life of the project, enter 0.00 for the answer.)

Discounted payback periods of project A
Discounted payback periods of project B

Management of Sycamore Home Furnishings is considering acquiring a new machine that can create customized window treatments. The equipment will cost $314,550 and will generate cash flows of $96,750 over each of the next six years. If the cost of capital is 12 percent, what is the MIRR on this project? (Round intermediate calculations to 4 decimal places, e.g. 1.2514. Round answer to 2 decimal places, e.g. 15.25%.)

Management of Great Flights, Inc., an aviation firm, is considering purchasing three aircraft for a total cost of $123,007,523. The company would lease the aircraft to an airline. Cash flows from the proposed leases are shown in the following table.

Years		Cash Flow
1–4		$17,625,000
5–7		54,000,000
8–10		60,000,000

What is the IRR of this project? (Round answer to 2 decimal places, e.g. 15.25%.)

Answer 1

1)

A с 254 255 256 257 B Cash flow (353,558) 150,100 150,100 150,100 150,100 150,100 150,100 150,100 Year 0 $ 1 $ 2 $ 3 $ 4 $ 50 $ 6 $ 7 $ 258 259 260 261 262 263 264 IRR 38.00% =IRR(B255:3262)

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