University of Connecticut
School of Business -Department of Finance
Financial Management (FNCE3101)
Homework 4 – Spring 2022
Prof. John D. Knopf
Due: April 4th 11:59pm
Complete on an EXCEL spreadsheet and submit to HUSKYCT.
1. A company is considering the following project. It’s required rate of return is 10%. Its
Payback cutoff is 4 years.
Year Cash Flow
a. What is the Payback Period? Should the company accept the project using the Payback
. What is the NPV? Should the company accept the project using the NPV method?
c. What is the IRR? Should the company accept the project using the IRR method?
2. CTC Co. bought a new machine for $200,000. CTC will depreciate the machine using the
ACRS method. The machine is classified as a 7-year asset. How much will CTC depreciate
each year for the depreciable life of the asset?
3. The Loviscek Co. is considering the purchase of a new machine. Financial projections for
the investment are provided below.
Cost of New Machine 500,000
Fixed Costs XXXXXXXXXX, XXXXXXXXXX,000
Depreciation XXXXXXXXXX, XXXXXXXXXX,000
Net Working Capital 50, XXXXXXXXXX, XXXXXXXXXX,000
The price per unit and variable cost per unit are $40 and $25, respectively. The company expects
to sell 30,000 units per year in years 1 & 2. After Year 2 cash flows will grow at a constant rate of
3% forever. The company discounts all cash flows at 10% and has a marginal tax rate of 20%.
What is the Net Present Value of the project?