# Shalit Corporation's 2008 Sales Were \$ 12 Million

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Find the effect annual interest rate by taking .04/12 plus 1, raised to the 12th power. Then subtract 1. Then times it by 100. This is the new I/Y. 50,000 is the PV. 18 years is N. 0 is payments. Compute for the FV. 1. Shalit Corporation’s 2008 sales were \$12 million. Its 2003 sales were \$6 million. a. At what rate have sales been growing? With a calculator, enter N = 5, PV = -6, PMT = 0, FV = 12, and then solve for I/YR = 14.87%. Must put the PV as a negative or an error will occur. b. Suppose someone made this statement: “Sales doubled in 5 years. This represents a growth of 100% in 5 years; so dividing 100% by 5, we find the growth rate to be 20% per year.” Is that statement correct? The calculation…show more content…
Thus, the annual growth rate is less than 20%; in fact, it is about 15%, as shown in Part a. 1. The Ohm Depot Co. is currently considering the purchase of a new machine that would increase the speed of manufacturing electronic equipment and save money. The net cost of the new machine is \$66,000. The annual cash flows have the following projections: If the cost of capital is 10 percent find the following: a. The PVB = \$86,000.77 as shown below. Can be found by inputing the number (21000) as a FV, putting 1 for N, 10% for I/Y, 0 for payments then computing for the PV. Then add all of these numbers up. For the second number (29000) put 2 as N,…show more content…
The NPV. NPV = PV Benefits - PV Costs NPV = \$86,000.77 - \$66,000 = \$20,000.77 c. The IRR (Hint: use interpolation, IRR is between 20 percent and 25 percent). First we find the present value of the unequal cash flows for an interest rate of 20% and 25% as shown in the following table. -66,000 HAS TO BE A NEGATIVE INPUT IN THE CF0 OR YOU WILL GET AN ERROR!!! d. Payback. e. PI. 2. Kay Sadilla is considering investing in a franchise that will require an initial outlay of \$75,000. She conducted market research and found that after-tax cash flows on the investment should be about \$15,000 per year for the next 7 years. The franchiser stated that Kay would generate a 20 percent return. Her cost of capital is 10 percent. Find the following: a) The PVB. Payment is 15000, 7 is N, FV is 0, 10 is the I/Y and compute for the PV b) The PVC. This is given as \$75,000 c) The NPV. NPV = \$73,026.28 - \$75,000 = (\$1,973.72) Input -75,000 in the cfo and 15000 for 7 years. Then press npv, 10 for interest, go down and compute d) The IRR (Hint: Use interpolation, IRR is between 8 percent and 10 percent). 9.22 Payback=C/ ATB (cost over after tax