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Sheet1 Exercise 13-1 Payback Method YearInvestmentCash inflowUnrecovered Investment*Hint - Look at PP lecture slide for assistance 1$ 15,000.00$ 1,000.00 2$ 8,000.00$ 2,000.00 3$ - 0$ 2,500.00 4$ - 0$ 4,000.00 5$ - 0$ 5,000.00 6$ - 0$ 6,000.00 7$ - 0$ 5,000.00 8$ - 0$ 4,000.00 9$ - 0$ 3,000.00 10$ - 0$ 2,000.00 1. Determine the payback period of the investment. For uneven annual net cash inflow - you ned to track the un-recovered investment each year or use a formula. Formula:Payback period = A + B/C A = The number of years up to the year in which the investment is paid off B = Unrecovered investment at the beginning of the year in which the investment is paid off (23,000 – 20,500) = 2500 C= Cash inflow in the period in which the investment is paid off 2. Would the payback period be affected if the cash inflow in the last year were several times as large? Exercise 13-7 Net Present Value Analysis of Two Alternatives*Hint - Look at Lecture PP slides Perit Industries has $100,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Project AProject B**Annual inflows/outflows are annuities - can use annuity table for those Cost of Equipment Required$100,000$0 Working capital investment required$0$100,000 Annual cash inflows$21,000$16,000 Salvage value of equipment in 6 years$8,000$0 Life of Project6 Years6 Years The working capital needed for Project B will be released at the end of 6 years for investement elsewhere. Perit Industries' discount rate is 14%. 1) Compute the NPV for Project A. YearProject A14% FactorPresent Value Cost of Equipment RequiredNow-100000 Working capital investment required0 Annual cash inflows621000**Annual inflows/outflows are annuities - can use annuity table for those Salvage value of equipment in 6 years68000 Life of Project6 NPV 2) Compute the NPV for Project B Project B14% FactorPresent Value Cost of Equipment Required0 Working capital investment requiredNOW-100000 Annual cash inflows16000**Annual inflows/outflows are annuities - can use annuity table for those Salvage value of equipment in 6 years0 Life of Project6 Working capital released 6100000 NPV 3) Which investment alternative (if either) would you recommend that the company accept? Look at Lecture PP slide to help when assessing NPV (0, Positive, Negative NPV) Exercise 13-10 Basic Net Present Value Analysis 1) Compute the NPV that Kathy earned on her investment in Malti Company stock. Round your answer to the nearest whole dollar. YearFactorPV Purchase of Stock($13,000)Now Annual Cash Dividend$420Years 1-3**Annual inflows/outflows are annuities - can use annuity table for those Sale of Stock$16,0003 NPV 2) Did the Malti Company stock provide a 14% return? Problem 13-16 Net Present Value Analysis The mineral deposit would be exhausted after four years of mining. At that point, the working capital would be released for reinvestment elsewhere. The company’s required rate of return is 20%. 1) What is the net present value of the proposed mining project? Year20% FactorPV Investment($275,000)Now 1($275,000) Working capital needed($100,000)Now1($100,000) Annual Net cash receipts (inflows)$120,0001-4 yrs2.589$310,680**Annual inflows/outflows are annuities - can use annuity table for those Cost to construct new roads($40,000)30.579($23,160) Salvage value of equipment$65,00040.482$31,330 Working capital released in 4 years$100,00040.482$48,200 NPV($7,950)No. Now1234 Investment($275,000) Working capital needed($100,000) Annual Net cash receipts (inflows)120,000120,000120,000120,000 Cost to construct new roads($40,000) Salvage value of equipment$65,000 Working capital released in 4 years$100,000 Total cash flow($375,000)$120,000$120,000$80,000$285,000 Discount factor (20%)10.8330.6940.5790.482Need to determine the factor using the factor table (20%) for each year Present Value (Total Cash Flow*Discount Factor)($375,000)$99,960$83,280$46,320$137,370 NPV($8,070) ($7,928.24)