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KIX2002 Tutorial 6 Evaluating A Single Project Part 2

1) A hybrid Toyota Camry costs $3,720 more than a gasoline model. At $2/gallon gas and driving for 15 years, what is the internal rate of return on the extra investment in the hybrid? 2) A company can take over a redevelopment project requiring $2.4M investment in year 4. Net cash flows are provided for 10 years. Determine if multiple internal rates of return exist using the present worth versus interest rate and ERR methods. 3) An initial $100M investment is needed for a solar sea power plant with estimated annual revenues of $15M for years 1-5 and $20M for years 6-20. Calculate the simple and discounted payback

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218 views1 page

KIX2002 Tutorial 6 Evaluating A Single Project Part 2

1) A hybrid Toyota Camry costs $3,720 more than a gasoline model. At $2/gallon gas and driving for 15 years, what is the internal rate of return on the extra investment in the hybrid? 2) A company can take over a redevelopment project requiring $2.4M investment in year 4. Net cash flows are provided for 10 years. Determine if multiple internal rates of return exist using the present worth versus interest rate and ERR methods. 3) An initial $100M investment is needed for a solar sea power plant with estimated annual revenues of $15M for years 1-5 and $20M for years 6-20. Calculate the simple and discounted payback

Uploaded by

Wen Han
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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KIX2002 Tutorial 6 Evaluating a Single Project Part 2

1) Toyota will bring hybrid electric automobiles to market next year priced at $30,000 (this
includes a $7,500 federal tax credit). At $2.00 per gallon of gasoline, it will take 10 years
to recoup the difference in price between a base model Toyota Camry and its four-
cylinder gasoline-only counterpart. The price difference is $3,720. If the hybrid vehicle is
driven for 15 years, what is the internal rate of return on the extra investment in the
hybrid?

2) A company has the opportunity to take over a redevelopment project in an industrial area
of a city. No immediate investment is required, but it must raze the existing buildings
over a four-year period and, at the end of the fourth year, invest $2,400,000 for new
construction. It will collect all revenues and pay all costs for a period of 10 years, at
which time the entire project, and properties thereon, will revert to the city. The net cash
flows are estimated to be as follows:

Year End Net Cash Flow


1 $500,000
2 300,000
3 100,000
4 -2,400,000
5 150,000
6 200,000
7 250,000
8 300,000
9 350,000
10 400,000

Tabulate the PW versus the interest rate and determine whether multiple IRR exist. If so,
use the ERR method.

3) A solar sea power plant (SSPP) is being considered in a North American location known
for its high temperature ocean surface and its much lower ocean temperature 100
meters below the surface. Power can be produced based on this temperature differential.
With high costs of fossil fuels, this particular SSPP may be economically attractive to
investors. For an initial investment of $100 million, annual set revenues are estimated to
be $15 million in years 1-5 and $20 million in years 6-20. Assume no residual market
value for the SSPP.

a. What is the simple payback period for the SSPP?


b. What is the discounted payback period when the MARR is 6% per year?
c. Would you recommend investing in this project?

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