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    Answer of First Tutorial in Corporate Finance

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    HagarMahmoud
    This document contains the solutions to 6 problems in corporate finance. Problem 1 calculates the payback period of an investment. Problem 2 rejects an investment. Problems 3 evaluates two projects and selects the one with the shorter payback period. Problem 4 calculates the net present value of a project with cash flows over 4 years. Problem 5 compares two projects based on their payback periods and net present values, selecting the one with the higher NPV. Problem 6 calculates the NPV of a project assuming a 0% interest rate.

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    Answer of First Tutorial in Corporate Finance

    Uploaded by

    HagarMahmoud
    30 views4 pages
    This document contains the solutions to 6 problems in corporate finance. Problem 1 calculates the payback period of an investment. Problem 2 rejects an investment. Problems 3 evaluates two projects and selects the one with the shorter payback period. Problem 4 calculates the net present value of a project with cash flows over 4 years. Problem 5 compares two projects based on their payback periods and net present values, selecting the one with the higher NPV. Problem 6 calculates the NPV of a project assuming a 0% interest rate.

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    This document contains the solutions to 6 problems in corporate finance. Problem 1 calculates the payback period of an investment. Problem 2 rejects an investment. Problems 3 evaluates two projects and selects the one with the shorter payback period. Problem 4 calculates the net present value of a project with cash flows over 4 years. Problem 5 compares two projects based on their payback periods and net present values, selecting the one with the higher NPV. Problem 6 calculates the NPV of a project assuming a 0% interest rate.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
    30 views4 pages

    Answer of First Tutorial in Corporate Finance

    Uploaded by

    HagarMahmoud
    This document contains the solutions to 6 problems in corporate finance. Problem 1 calculates the payback period of an investment. Problem 2 rejects an investment. Problems 3 evaluates two projects and selects the one with the shorter payback period. Problem 4 calculates the net present value of a project with cash flows over 4 years. Problem 5 compares two projects based on their payback periods and net present values, selecting the one with the higher NPV. Problem 6 calculates the NPV of a project assuming a 0% interest rate.

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    © All Rights Reserved
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    of 4

    Answer of First Tutorial in Corporate Finance

    Problem No. 1:
    PBP = 5,000,000 – 1,800,000 – 1,900,000 – 700,000 = 600,000
    𝟔𝟎𝟎,𝟎𝟎𝟎
    3 + 𝟏,𝟖𝟎𝟎,𝟎𝟎𝟎 = 3.33 Years

    Problem No.2:
    Reject

    Problem No.3:

    Project (A):
    𝟏𝟎,𝟎𝟎𝟎
    PBP = = 2.5 Years
    𝟒,𝟎𝟎𝟎

    Accept Project (A)

    Project (B):
    10,000 – 4,000 – 3,000 – 2,000 = 1,000
    𝟏,𝟎𝟎𝟎
    PBP = 3 + 𝟏,𝟎𝟎𝟎,𝟎𝟎𝟎 = 3.001

    Reject Project (B)

    Page 1 of 4
    Problem No.4:
    R = 12%

    Year CF 𝑭𝑽
    PV = (𝟏− 𝒓)𝒏

    0 5,000,000 5,000,000

    1 2,500,000 2,232,142

    2 2,300,000 1,833,545

    3 2,200,000 1,565,916

    4 (1,300,000) (826,173)

    TOTAL 4,805,430

    𝑪𝑭
    A) NPV = – Initial Investment
    (𝟏+ 𝒓)𝒏

    = 4,805,430 – 5,000,000 = (194,570)

    Problem No.5:

    A) Project (A):

    R= 13%

    PBP = 80,000 – 15,000 – 20,000 – 25,000 = 20,000


    𝟐𝟎,𝟎𝟎𝟎
    PBP = 3 + = 3.67 Years
    𝟑𝟎,𝟎𝟎𝟎

    Project (B):
    𝟓𝟎,𝟎𝟎𝟎
    PBP = = 3.33 Years
    𝟏𝟓,𝟎𝟎𝟎

    Page 2 of 4
    B) R = 13%

    Project (A):

    Year CF 𝑭𝑽
    PV = (𝟏− 𝒓)𝒏

    0 80,000 80,000

    1 15,000 13,274

    2 20,000 15,662

    3 25,000 17,326

    4 30,000 18,399

    5 35,000 18,996

    TOTAL 83,657

    𝑭𝑽
    NPV = (𝟏− 𝒓)𝒏 – Initial Investment

    = 83,657 – 80,000 = 3,657

    Project (B):
    𝑪𝑭 𝟏
    PV = × (𝟏 − (𝟏+ 𝒓)𝒏)
    𝒓

    𝟏𝟓,𝟎𝟎𝟎 𝟏
    = × (𝟏 − (𝟏+ 𝟏𝟑%)𝟓)
    𝟏𝟑%

    = 52,758

    Page 3 of 4
    C) Preference:

    A B

    PBP × √

    NPV √ ×

    I Recommend Project (A) because the NPV is grater that project (B).

    Problem No.6:
    R= 0% when r is 0% all numbers still the same.

    NPV = (1,800,000 + 1,900,000 + 1,700,000 + 1,300,000) – 5,000,000

    = 1,700,000

    Page 4 of 4

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