Seatwork I

1. (a) Negative
(b) PV = C1/(1+r)
(c) NPV = C0 + C1/(1+r)
(d) r is the return foregone by investing in the project rather than the capital ar!et"
(e) the return offere# by ris!$free governent (treasury) securities
2. DF = 0.867; discount rate = 0.15 or 15.!
". (a) 0.#0#" (b) 0.8""" (c) 0.76#
. DF = 0.507
5. (a) %eturn = profit/investent = (1&' $ 100)/100 = 0."2( or "2!
(b) Negative
(c) P1'0(000
(d) P'0(000
6. NPV rule) *nvest if NPV is positive+
%ate of return rule) *nvest if the rate of return e,cee#s the opportunity cost of capital+
-./( they give the sae ans0er+
Seatwork II
1. a, b, d, g, h are incremental cash fows
2. Real cash fow = 100,000/1.04 = 96,153.85 ; real discount rate = 1.08/1.04 - 1 = .03846;
!"= 96153.85/1.0384 = 9#,593
3.
NPV using real fgures
4.
NPV using nominal fgures