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NPV comprehensive problems set: I. Consider the following sets of cash flows: Project Y & Project Z Net Cash Flows (in $millions): Year 0 1 2 3 4 5 Project Y -1,100 100 200 450 600 1,700 Project Z -800 200 300 350 400 1,100 Q1. Calculate IRR for each project. Which project would you select based only on the IRR results. Q2. Calculate NPV for each project, If WACC = 10%. Which project would you select if you were to choose only Project Y or Project Z? Q2. Calculate NPV for each project, If WACC = 20%. Which project would you select if you were to choose only Project Y or Project Z? II. Edison Motors Inc. is considering buying new robots to build its new fully electric vehicles. It has the option to select between two models: T-4000 and T-2000. T4000 will need to be replaced every 4 years while T-2000 will need to be replaced every 2 years. The company can only use one or the other model for its assembly line. The table below shows the contribution to net cash flows for each model respectively. CF Data (in $millions): WACC 10% Robot 1: Year 0 1 2 3 4 Net Cash Flows -30.5 9.0 11.0 11.0 11.5 Robot 2: Year 0 1 2 Net Cash Flows -15.25 9.0 11.0 Q1. Calculate NPV and IRR for each set of cash flows. Q2. Which Robot model should the company buy? III. Salesalot Inc. is considering investing in a new building and manufacturing equipment to expand into a new line of hot products and increase sales. The duration of this project is 5 years. At the end of the project the building and equipment will be sold and the initial investment in working capital will be recovered. This investment initiative is expected to increase sales by $100M in the first year after the project is implemented. Sales are expected to continue to grow linearly at 10%. All additional information for the project Is provided in the table below: Year 0 1 2 3 4 5 Data (in $millions): Project End Market Value Buy new Building 67.00 15.00 Equipment 12.00 4.00 Equipment Installation. 3.00 Initial Working Capital Investment 11.00 Building MACRS 39-y 1.28% 2.56% 2.56% 2.56% 2.56% Equipment MACRS 5-y 20.0% 32.0% 19.20% 11.52% 11.52% Annual Sales in Year 1 100.00 Sales Annual Growth Rate 10% Variable cost, % of Sales 58% Fixed cost 20.00 Tax Rate 39% WACC 11% Q1. Calculate the after tax operating cash flows including the terminal cash flow in year 5. Q2. Calculate NPV and IRR. Should the company undertake this investment? Q3. Calculate the payback period. Interpret the results. Q4. If sales growth is 5% instead of 10%, should the company undertake this investment?

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NPV Comprehensive Problem Set
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