MATERIA: FINANZAS CORPORATIVAS AVANZADAS

TITULAR: DR. EDUARDO AUGUSTO OCHOA NEGRETE

TUTOR: LIC. CRISTINA PAOLA MUOZ AGUILA

INTEGRANTES: Andrs Emmanuel Rivera Nuez A01150768

EXERCISE 2.3: CHAPTER 5 AND 6 PRINCIPLE OF CORPORATE FINANCE CHAPTER 5: 2. Write down the equation defining a projects internal rate of return (IRR). In practice how is IRR calculated? To define the IRR equation, we need a Investment, in this case is $1,000, and different cash flows, you could define how many cash flows use, from 1 to 5 of preference, in this case is C1 = 600 and C2 = 500. You calculate this taking the Initial Investment to the Last Cash Flow, and with this amounts of money we obtain an IRR Rate from 7%, this means that the Project is OK because is positive the rate. Cash Flow C0 C1 C2 IRR ($) -1000 600 500 7%

Se est pidiendo la ecuacin y esta se encuentra en la pgina 108 (Cap. 5 del libro de texto) 3. a. Calculate the net present value of the following project for discount rates of 0, 50, and 100%: Cash Flows C0 C1 C2 ($) 6,750 4,500 18,000

Cash Flow ($) Discount Rate C0 -6750 0% 50% C1 4500 $15,750.00 $2,833.33 C2 18000 Recuerda que el flujo del ao cero no se descuenta NPV(0,4500,18000)-6750 = $15,750.00 NPV(50%,4500,18000,)-6750 = $ 4,250.00 NPV(100%,4500,18000)-6750 = 0.00%

100% $0.00

b. What is the IRR of the project? Cash Flow C0 C1 C2 IRR ($) -6750 4500 18000 100%

5. Consider a project with the following cash flows: C0 C1 C2 (-)100 200 75

a. How many internal rates of return does this project have? Two internal rates of return this project has. b. Which of the following numbers is the project IRR: (i) - 50%; (ii) - 12%; (iii) + 5%; (iv) + 50%? These are (i) -50% and (iv) +50%. c. The opportunity cost of capital is 20%. Is this an attractive project? Briefly explain. Yes, this is an attractive project. Check the results. Cash Flow C0 C1 C2 Rate ($) -100 200 -75 20%

NPV $12.15 Recuerda que el flujo del ao cero no se descuenta Igual que en el problema 3 CHAPTER 6:

1. Which of the following should be treated as incremental cash flows when deciding whether to invest in a new manufacturing plant? The site is already owned by the company, but existing buildings would need to be demolished. a. The market value of the site and existing buildings. b. Demolition costs and site clearance. c. The cost of a new access road put in last year. d. Lost earnings on other products due to executive time spent on the new facility. e. A proportion of the cost of leasing the presidents jet airplane. f. Future depreciation of the new plant. g. The reduction in the corporations tax bill resulting from tax depreciation of the new plant. h. The initial investment in inventories of raw materials. i. Money already spent on engineering design of the new plant. 4. How does the PV of depreciation tax shields vary across the recovery-period classes shown in Table 6.4 ? Give a general answer; then check it by calculating the PVs of depreciation tax shields in the five-year and seven-year classes. The tax rate is 35% and the discount rate is 10%. TAX DEPRECIATION SCHEDULES BY PRESENT VALUE RECOVERY PERIOD CLASS Period 5-Year 7-Year 5-Year 7-Year Rate 35% 1 20 14.29 $18.18 12.99 Discount Rate 10% 2 32 24.49 $26.45 20.24 3 19.2 17.49 $14.43 13.14 4 11.52 12.49 $7.87 8.53 5 11.52 8.93 $7.15 5.54 6 5.76 8.92 $3.25 5.04 7 8.93 4.58 8 4.46 2.08 Se est pidiendo una explicacin del efecto en los ahorros fiscales por lo depreciacin cuando se utiliza periodos de recuperacin diferentes (5 y 7 aos)

5. The following table tracks the main components of working capital over the life of a fouryear project. 2010 Accounts receivable Inventory Accounts payable 0 75,000 25,000 2011 150,000 130,000 50,000 2012 225,000 130,000 50,000 2013 190,000 95,000 35,000 2014 0 0 0

Calculate net working capital and the cash inflows and outflows due to investment in working capital.

Concept 2010 2011 2012 2013 2014 Accounts Receivable $$150,000.00 $225,000.00 $190,000.00 $Inventory $75,000.00 $130,000.00 $130,000.00 $95,000.00 $Inflow $75,000.00 $280,000.00 $355,000.00 $285,000.00 $Accounts Payable $25,000.00 $50,000.00 $50,000.00 $35,000.00 $Outflow $25,000.00 $50,000.00 $50,000.00 $35,000.00 $Cash Flow $50,000.00 $230,000.00 $305,000.00 $250,000.00 $2011 Al flujo del 2011 debes restar el flujo del 2010 ($230,000-$50,000)=$180,000 2012 Al flujo del 2012 debes restar el flujo del 2010 y 2011 ($305,000-$50,000-$180,0000)=$75,000 Se contunua de esta forma para el 2013 y 2014 6. When appraising mutually exclusive investments in plant and equipment, financial managers calculate the investments equivalent annual costs and rank the investments on this basis. Why is this necessary? Why not just compare the investments NPVs? Explain briefly55 Sometimes opportunity costs may be very difficult to estimate; however, where the resource can be freely traded, its opportunity cost is simply equal to the market price. Why? It cannot be otherwise. If the value of a parcel of land to the firm is less than its market price, the firm will sell it. On the other hand, the opportunity cost of using land in a particular project cannot exceed the cost of buying an equivalent parcel to replace it Se est pidiendo una explicacin de porqu los administradores determinan en costo anual equivalente cuando se tienen proyectos de inversin mutuamente excluyentes.