A firm is considering a project that requires an initial investment of $250,000. The life of this project is five years. Cash flows for each year are estimated as follows:

The cost of capital of this project is 8%. Calculate the profitability index and make a decision.

Kermit Kite Co. has 2 Projects under consideration- PROJECT C and PROJECT D with the following cashflows.

PROJECT C PROJECT D

Year 0 (800,000) Year 0 (360,000)

Year 1 450,000    Year 1 200,000

Year 2 350,000    Year 2 265,000

Year 3 215,000

The firm's cost of capital is 12%.

Calculate the EAA for each project. Which is the preferred project under EAA and why?

Different cash flow.  Given the following cash inflow at the end of each​ year, what is the future value of this cash flow at 3 %​, 8 %​, and 16​% interest rates at the end of year​ 7? Year​ 1: ​$12,000 Year​ 2: ​$21,000 Year​ 3: ​$31,000 Years 4 through​ 6: ​$0 Year​ 7: ​$150,000 What is the future value of this cash flow at 3​%, 8% and 16% interest rate at the end of year​ 7?

An Australian multinational company is planning a project in the UK. The costs and expected cash flows for the project are as follows:

         Project 1:

         Exchange rate:

            The company uses a discount rate of 10% for all projects. Is the project acceptable for cash flows assessed in Australian Dollar (A$)? Also, determine payback period of the project for cash flows converted to Australian Dollar (A$).

You’re considering investing in a 2-year 7% annual coupon bond priced at par. Alternatively, you’ll consider a 1-year 5% annual coupon bond priced at par and subsequently reinvesting all your proceeds in another identical 1-year bond. You expect the 1-year bond will yield 9% next year. Assuming you turn out to be right, which approach would generate the higher return?

• Invest in the 2-year bond.
• Invest in the 1-year and reinvest the proceeds in another 1-year.

A company is considering two investment options:

• Option 1: An investment of $45,000 today, and another investment of $15,000 in year 3, with returns of $18,000 in year 2, $7000 in year 3, and $50,000 in year 5.
• Option 2: An investment of $55,000 today, and another investment of $5000 in year 4, with returns of $15,000 in year 1, $16,000 in year 3, and $60,000 in year 5.

Calculate the internal rate of return for each option. Which investment option should the company select?  (Show ALL CF entries in the tables below. Justify your answer.)

1. You are evaluating two mutually exclusive projects.  The cash flows for each are:

Project A                      Project B

            Year 0               ($60,000)                      ($85,000)

            Year 1               $20,000                        $22,000

            Year 2               $35,000                        $25,000

            Year 3               $20,000                        $30,000

            Year 4               $25,000                        $25,000

            Year 5                                                   $15,000

            Year 6                                                   $10,000

            Year 7                                                   $10,000

            Year 8                                                   $10,000

Assume that, if needed, each project is repeatable with no change in cash flows.  Your cost of capital is 13%.

1. Using the replacement chain approach, which project would you chose to invest in?

2. Using the equivalent annual annuity approach, which project would you chose to invest in?

The total price of purchasing a basket of goods in the United Kingdom over four years is: year 1=£840, year 2=£870, year 3=£900, and year 4=£970. Calculate two price indices, one using year 1 as the base year (set equal to 100) and the other using year 4 as the base year (set equal to 100). Round to the nearest 100th. Then, calculate the inflation rate between year1 and year 4 based on the first price index series. If you had used the other price index series, would you get a different inflation rate? If you are unsure, do the calculation and find out.

Shell is experiencing rapid growth. Earnings and dividends are expected to grow at a rate of 15% during the next 2 years, at 13% the following year, and at a constant rate of 6% during Year 4 and thereafter. Its last dividend was $1.15, and its required rate of return is 12%.

b) Find the PV of the firm’s stock price at the end of Year 3.

f) Calculate the dividend and capital gains yields for Years 1, 2, and 3.

Dividend Yield Year 1 =   %

Capital Gains Yield Year 1 =   %

Dividend Yield Year 2 =   %

Capital Gains Yield Year 2 =   %

Dividend Yield Year 3 =   %

Capital Gains Yield Year 3 =   %

1. Havana, Inc., has identified an investment project with the following cash flows. If the discount rate is 5 percent, what is the future value of these cash flows in Year 4? (Hint: Be careful with the number of periods.) If the picture doesn't load, the cash flows shown in the picture are as follows: 910 in year 1; 1140 in year 2; 1360 in year 3; and 2100 in year 4.

2. Havana, Inc., has identified an investment project with the following cash flows. If the discount rate is 9 percent, what is the future value of these cash flows in Year 5? (Hint: Be careful with the number of periods.) If the picture doesn't load, the cash flows shown in the picture are as follows: 910 in year 1; 1140 in year 2; 1360 in year 3; and 2100 in year 4.