Pregrado de Administración de Empresas

Investment Valuation
2017 - 2
Marie Boltz, PhD

Exercises
Multiple selection of investment projects

The following exercises are based on the following investments:

t A B C D E F G H I J K L M N
0 200 200 100 100 100 100 60 60 300 150 250 1000 600 50
1 15 0 0 0 0 100 0 0 0 0 0 0 0 0
Costs ($)

2 0 5 0 0 0 0 100 0 0 0 0 0 0 0
3 0 5 15 5 50 0 100 0 0 5 10 0 50 250
4 0 10 0 5 0 25 0 0 0 5 0 0 0 0
5 0 0 0 5 0 0 0 0 0 0 0 10 0 0
6 0 0 0 0 0 0 0 0 0 0 0 10 0 0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
1 0 120 0 0 0 0 0 0 0 0 0 0 0 0
Incomes ($)

2 0 0 100 0 0 0 0 300 350 0 540 0 0 200

3 500 200 100 0 200 0 0 0 0 0 0 0 0 0
4 0 200 100 0 0 0 250 0 0 575 0 0 0 0
5 0 0 0 100 0 250 300 0 0 0 0 0 450 400
6 0 0 0 50 0 0 0 0 0 0 0 2000 400 0

Exercise 1 Assuming that the investments are mutually exclusive (only one can be implemented at the same time),
find the investment that should be selected according to the following criteria:

1.
Maximization of the Net Present Value.
2.
Maximization of the interest among investments characterized by a positive NPV.
3.
Maximization of the NPV among the investments characterized by the minimization of the Simple Payback
Period (SPP) and by a positive NPV.
4. Maximization of the interest among the investments characterized by the minimization of the SPP and by a
positive NPV.
5. Maximization of the Profitability Index (PI) among investments characterized by the minimization of the SPP
and a positive NPV.
6. Maximization of the Profitability Index.
7. Maximization of the NPV among the investments characterized by the minimization of the Discounted
Payback Period (DPP).
8. Maximization of the interest among the investments characterized by the minimization of the Discounted
Payback Period (DPP).
9. Maximization of PI among the investments characterized by the minimization of the Discounted Payback
Period (DPP).
Use an opportunity rate of 8% periodically.

Exercise 2 Assuming that the investments are independent (several can be implemented at the same time), find the
investment (s) that should be selected according to the NPV Maximization criteria and under different budget
constraints:

 Constraint 1: An initial budget of $ 300 in the present.

 Constraint 2:
2.1. An initial Budget of 300$ in the present
2.2. Within this initial budget, it can be assigned from period 𝑡 to the next period 𝑡 + 1 what is not
used in 𝑡 to finance costs in 𝑡
 Constraint 3:
 Marie Boltz Investment Valuation

3.1 An initial Budget of 300$ in the present

3.2 The possibility to use up to 35% of the income of period 𝑡 to finance the costs in 𝑡.
3.3 The remaining 65% can only finance costs in 𝑡 + 1.
3.4 Within the total Budget deriving from these financing modalities, it is possible to allocate from a
period 𝑡 to the next period 𝑡 + 1 what is not used in 𝑡 to finance costs in 𝑡.
 Constraint 4:
4.1 An initial Budget of 300$ in the present.
4.2 The possibility to use up to 35% of the income of period 𝑡 to finance the costs in 𝑡.
4.3 The remaining 65% can only finance costs in 𝑡 + 1.
4.4 The possibility to ask for a loan. The maximum that can be borrowed is 125$, to be reimburse
through the payment of 5 uniform quotas (one per period) with an interest rate of 12% periodically.
4.5 From the total Budget derived from these financing modalities, it can be assigned from period 𝑡 to
the following period period 𝑡 + 1 what is not used in 𝑡 to finance costs in 𝑡.

Exercise 3 Redo Exercise 2, assuming an initial Budget of 500$ in the present (instead of 300$).

Exercise 4 Redo Exercise 2 and in the case of Constraint 4, assuming an initial Budget of 500$ in the present (instead
of 300$) and a loan with an interest rate of 24% periodically (instead of 12%).