FINANCE-Yourfirmisconsideringinvestinganewtrucktobeusedtomakedeliveries.

1. Yourfirmisconsideringinvestinganewtrucktobeusedtomakedeliveries.Thetruckcosts$40,000andhasanexpectedusefullifeof10years.Thediscountratefor
an investment of this nature is8%.

a. Ifthetruckisexpectedtogenerateoperatingcashinflowsof$6,000peryear,would
you recommend your firm pursue this investmentopportunity?

b. Ifthetruckisexpectedtogenerateoperatingcashinflowsof$6,000peryearANDhaveasalvagevaluein10yearsof$5,000,wouldyourecommendyourfirm
pursue this investmentopportunity?

2. You work for a company with
the following projects underconsideration:

Cashflows($)

ProjectYear

0

1

2

3

4

5

A

-3,100

800

800

800

800

800

B

-1,500

400

400

400

400

400

C

-5,000

1,300

1,300

1,300

1,300

1,300

The discount rate
for these projects is8%.

a. Which, if any, of these
projects would you recommend your companypursue?

b. Ifyourcompanyonlyhas$5,000toinvest,whatisyourrecommendationasto
how to invest thatcapital?

3.
You work for a company considering purchasing
assets that are expectedto generatecashinflowsof$15mperyearfor15years.Theassetscost$100m.Investments
of this nature have a discount rate of12%.

a. What is the payback period of
this investmentopportunity?

b. If your
company has a policy of rejecting investment opportunities that haveapayback
period greater than 5 years, wouldyou
accept thisinvestmentopportunity?

c. Shouldyou accept this investmentopportunity?

d. Describe
the calculation necessary to compute the Internal Rate of Return(IRR)of this
investmentopportunity.

e. Use Excel to compute the IRR
of this investmentopportunity.