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1. Explain feasibility analysis. 2. What is the NPV? . . . the B/C? . . . the IRR? 3. What is the criterion for project acceptability for the NPV? . . . for the B/C? . . . for the IRR? 4. How is the IRR of a project generally calculated? 5. Why is the IRR generally not a good way to evaluate investment alternatives? 6. Consider the following investment. You invest $500 per acre to establish a stand of trees. At the end of each year for 30 years, you incur an annual management expense of $10. At the end of 30 years, you receive $5,000 per acre in stumpage fees. a. Calculate the NPV and B/C ratio for this investment. b. Calculate the internal rate of return on this investment to the nearest tenth of a percent. 7. Given below are the after-tax incremental cash flows for Projects A and B. Note the similarity between the two projects. End of Year Projects 0 1 2 3 4 5 Project A -10,000 -50000 60,000 20,000 30,000 15,000 Project B -10,000 50,000 -60,000 40,000 30,000 20,000 a) Calculate the NPV at 20% for each project. b) Calculate the IRR(s) for the two projects. c) If you had to invest in one of the projects, which project would you prefer and why? 8. The Rover 6 is a new custom-designed sports car. An analysis of the task of building the Rover 6 reveals the following list of relevant activities, their immediate predecessors, and their duration. Letter Normal Description Immediate Predecessor(S) Time (Days) B Design A 8 C Order special accessories B 1 D Build frame B 1 E Build doors B 1 F Attach axles, wheels, gas tank D 1 G Build body shell B 2 H Build transmission & drivetrain B 3 I Fit doors to bodyshell G, E 1 J Build engine B 4 K Bench-test engine J 2 L Assemble chassis L 1 N Paint body I 2 O Install wiring N 1 P Install interior N 2 Q Accept delivery of special accessories C 5 R Mount body and accessories on the chassis M, O, N, Q 1 S Road test R 1 T Attach exterior trim S 1
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