Cornerstones of Cost Management 2nd Edition by Don Hansen ,Maryanne Mowen

Exercise 8

Solving for Unknowns
Consider each of the following independent cases.
Required:
1. Hal's Stunt Company is investing $120,000 in a project that will yield a uniform series of cash inflows over the next four years. If the internal rate of return is 14 percent, how much cash inflow per year can be expected?
2. Warner Medical Clinic has decided to invest in some new blood diagnostic equipment. The equipment will have a three-year life and will produce a uniform series of cash savings. The net present value of the equipment is $1,750, using a discount rate of 8 percent. The internal rate of return is 12 percent. Determine the investment and the amount of cash savings realized each year.
3. A new lathe costing $60,096 will produce savings of $12,000 per year. How many years must the lathe last if an IRR of 18 percent is realized?
4. The NPV of a new product (a new brand of candy) is $6,075. The product has a life of four years and produces the following cash flows:

The cost of the project is three times the cash flow produced in Year 4. The discount rate is 10 percent. Find the cost of the project and the cash flow for Year 4.