To find NPV on a TI-83 plus calculator: APPS, FINANCE, scroll down to 7: npv(and then press ENTER

Function: npv(Rate, CF0, {CF List}, {CF Frequency})

Answer: npv(12,-165000,{63120,70800,91080}) =12627.41

PressENTERto see answer to NPV (12627.41)

Do not need to use CF frequency here because all CFs are different

Yes, we acceptthe project (because NPV>0) Year 1: 165,000 -63,120 = 101,880 to recover

Year 2: 101,880 -70,800 = 31,080 to recover

Year 3: 31,080 /91,080 = 0.34 year

Hence, the project pays back in 2+0.34 = 2.34 years

No, we do not accept the project based on the payback rule • Average Net Income = (13,620 + 3,300 + 29,100) / 3 = $15,340

• Average Book Value = 165,000/2 = $82,500

• Avg Invt= ½ of initial investment if straight-line depreciation

• AAR = 15,340 / 82,500 = 19% < Target AAR of 25% -- (165,000+3,300+29,100)/3 = 82,500

• No, we do not accept the project based on the AAR rule. -Project A cash flows ($) in years 0, 1, 2: -400, 250, 280

• Project B cash flows ($)in years 0, 1, 2: -500, 320, 340

• Incremental cash flow= B-A (Big-Small, Take B, forgo A):

-500 -(-400) = -$100, 320 -250 = $70, 340 -280 = $60

=> IRR(-100,{70,60}) = 20

• 20% is the crossover rate (or incremental IRR)

• If your required return (CoC) for both projects is 15%, Project B should be accepted because incremental IRR > CoC(NPV should be>0) To calculate the payback period, we need to find the time that the project has recovered its initial investment. After three years, the project has created:

$1,075 + 1,275 + 2,030 = $4,380

in cash flows. The project still needs to create another:

$4,600 - 4,380 = $220

in cash flows. During the fourth year, the cash flows from the project will be $1,175. So, the payback period will be three years, plus what we still need to make divided by what we will make during the fourth year. The payback period is:

Payback = 3 + ($220 / $1,175) = 3.19 years When we use discounted payback, we need to find the value of all cash flows today. The value today of the project cash flows for the first four years is:

Value today of Year 1 cash flow = $5,300/1.20 = $4,416.67

Value today of Year 2 cash flow = $6,400/1.22 = $4,444.44

Value today of Year 3 cash flow = $7,200/1.23 = $4,166.67

Value today of Year 4 cash flow = $8,500/1.24 = $4,099.15

To find the discounted payback, we use these values to find the payback period. The discounted first year cash flow is 4,416.67, so the discounted payback for an $8,000 initial cost is:

Discounted payback = 1 + ($8,000 − 4,416.67)/$4,444.44 = 1.81 years You're trying to determine whether to expand your business by building a new manufacturing plant. The plant has an installation cost of $12.7 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected net income of $1,924,300, $1,977,600, $1,946,000, and $1,399,500 over these four years, what is the project's average accounting return (AAR)? (Round your answer to 2 decimal places. (e.g., 32.16)) Our definition of AAR is the average net income divided by the average book value. The average net income for this project is:

Average net income = ($1,924,300 + 1,977,600 + 1,946,000 + 1,399,500) / 4 = $1,811,850

And the average book value is:

Average book value = ($12,700,000 + 0) / 2 = $6,350,000

So, the AAR for this project is:

AAR = Average net income / Average book value = $1,811,850 / $6,350,000 = 0.2853, or 28.53% When we use discounted payback, we need to find the value of all cash flows today. The value today of the project cash flows for the first four years is:

Value today of Year 1 cash flow = $6,200/1.18 = $5,254.24

Value today of Year 2 cash flow = $7,300/1.182 = $5,242.75

Value today of Year 3 cash flow = $8,100/1.183 = $4,929.91

Value today of Year 4 cash flow = $9,400/1.184 = $4,848.42

To find the discounted payback, we use these values to find the payback period. The discounted first year cash flow is 5,254.24, so the discounted payback for an $9,500 initial cost is:

Discounted payback = 1 + ($9,500 − 5,254.24)/$5,242.75 = 1.81 years