FIN3013 Lab #7

Questions? From Assignment #6

UTSA College of Business Payback Period amount of time required for an investment to generate cash flows sufficient to recover its initial cost What is the payback period of the following set of cash flows? Year 0 -$25,000 Year 1 5,000 Year 2 13,000 Year 3 8,000 Year 4 6,000 UTSA College of Business FIN3013Lab

Net Present Value (NPV) Difference between present value of an investment’s cash inflows and cash outflows What is the NPV of the following set of cash flows if the discount rate is 8%? Year 0 -$25,000 Year 1 5,000 Year 2 13,000 Year 3 8,000 Year 4 6,000 What is the NPV if the discount rate is 11%? UTSA College of Business FIN3013Lab

Internal Rate of Return (IRR) Discount rate that makes the NPV of an investment zero What is the IRR of the following set of cash flows? Year 0 -$25,000 Year 1 5,000 Year 2 13,000 Year 3 8,000 Year 4 6,000 UTSA College of Business FIN3013Lab

Calculating Operating Cash Flow La Cantera Manufacturing has projected an increased sales volume of $14,450 from a proposed expansion project. Variable costs run 70 percent of sales. The depreciation expense will be $800, and the tax rate is 34%. What is the operating cash flow? UTSA College of Business FIN3013Lab

UTSA College of Business Your company is considering a new project with the following characteristics: Initial cost = $500,000 Five-year life, no salvage value, straight-line depreciation Required return = 16% Tax rate = 34% Price per unit = $3,000 Variable cost per unit = $1900 Fixed costs = $250,000 per year No net working capital is required UTSA College of Business FIN3013Lab

UTSA College of Business Scenario Analysis You think unit sales, price, variable cost, and fixed cost projections are accurate to within 10%. What are the upper and lower bonds for these projections? What is the base-case NPV? What is the best-case scenario NPV? What is the worst-case scenario NPV? UTSA College of Business FIN3013Lab

UTSA College of Business Lab for next week Assignment #7 due Quiz #4 will cover NPV calculation, IRR calculation, and OCF calculation UTSA College of Business FIN3013Lab

UTSA College of Business Quiz #3 UTSA College of Business FIN3013Lab