Master of Business Administration

Course: Financial Management Year 2023/24

Assignment 2
Workout questions (25 marks)
There are 3 workout questions attempt them all!

1. Lepton Industries has a project with the following projected cash flows: ( 8 points)
o Initial cost: $468,000
o Cash flow year one: $135,000
o Cash flow year two: $240,000
o Cash flow year three: $185,000
o Cash flow year four: $135,000
a) Using an 8% discount rate for this project and the NPV model, determine whether the
company should accept or reject this project.
b) Should the company accept or reject it using a 14% discount rate?
C) Should the company accept or reject it using a 20% discount rate?
2. Country Farmlands, Inc. is considering the following potential projects for this coming
year, but has only $200,000 for these projects:
 Project A: Cost $60,000, NPV $4,000, and IRR 11%
 Project B: Cost $78,000, NPV $6,000, and IRR 12%
 Project C: Cost $38,000, NPV $3,000, and IRR 10%
 Project D: Cost $41,000, NPV $4,000, and IRR 9%
 Project E: Cost $56,000, NPV $6,000, and IRR 13%
 Project F: Cost $29,000, NPV $2,000, and IRR 7%
What projects should Farmlands pick? (8 points)

3. Your broker faxed to you the following information about two semiannual coupon
bonds that you are considering as a potential investment. Unfortunately, your fax
machine is blurring some of the items, and all you can read from the fax on the
two different bonds is the following:

Features IBM Coupon Bond AOL Coupon Bond

Face Value (Par) $ 1,000 $ 1,000
Cupon rate 9.5%
Yield to maturity 7.5 % 9.5%
Years to maturity 10 20
Price $ 689.15

Fill in the missing data from the information that the broker sent. (9 points)