This document provides guidance and examples for answering questions related to capital budgeting techniques. It includes sample calculations and formulas for net present value, internal rate of return, payback period, discounted payback period, breakeven analysis, and profitability index. The document instructs the reader to provide numeric answers for various questions and problems in highlighted areas based on the guidance and examples provided.

1. When you see something highlighted in yellow – that is where I
want you to put an answer.
Chapter 9 – Concepts Review and Critical Thinking Quesetions
1 & 7
#1 ANSWER
#7.
a. ANSWER
b.ANSWER
c. ANSWER
Chapter 9 – Questions and Problems
#14
You will need to compute the NPV and IRR of this project.
Please see my excel help below.
A. ANSWER based on NPV
B. ANSWER based on calculation of IRR
Problem 17
a. Payback is pretty easy to determine – ANSWER in number
of years
Project A
Project B
b. Discounted payback needs to have some computations done
–ANSWER BASED ON YOUR CALCULATIONS (see below) –
Answer in Number of years
Discounted Payback Project A
Discounted Paback Project B

2. c. Net Present Value using Excel. This is an example. You can
do this with both cash flows to see which one is better –
ANSWER BASED ON COMPUTING THE NPV (see example
below)
NPV Project A
NPV Project B
NPV
Year
Cash Flow A
Cash Flow B
0
-350000
-50000
1
45000
24000
2
65000
22000
3
65000
19500
4
440000
14600

3. PUT THE FORMULA HERE
PUT THE FORMULA HERE
NPV EXAMPLE
Year
0
(100,000.00)
1
5,000.00

4. 2
55,000.00
3
(4,000.00)
4
49,000.00
($28,678.43)
The NPV formula would be =NPV(.15,5000,55000,-
4000,49000)-100000
First you put in =NPV(
It asks for rate = .15

5. It asks for values
Put each value in STARTING WITH YEAR 1
separate with a comma
End the parenthesis
Subtract the beginning amount in YEAR 0.
That is your NPV

6. d. IRR is very easy in excel. Here is an example you should do
on both problems. ANSWER BASED ON IRR CALCULATION
(See example below)
IRR Project A
IRR Project B
IRR EXAMPLE
Year
0
(100,000.00)

7. 1
5,000.00
2
55,000.00
3
(4,000.00)
4
49,000.00
2%

8. The IRR formula is very easy
First you put in =IRR(
DO NOT CONSIDER RATE IN THIS FORMULA. It is telling
you the rate (the internal rate)
In this formula you DO PUT IN THE STARTING YEAR 0
I put in B76:B80 because on my excel sheet that was the
location of these values
Close the parenthesis
This is your IRR

9. E. Profitability Index defined as the present value of the future
cash flows divided by the initial investment. ANSWER BASED
ON CALCULATION. SEE EXAMPLE BELOW
Profitability Index Project A
Profitability Index Project B
Profitability Index
Year
0
(100,000.00)
Year zero is y our initial investment. Do not include this yet
1
5,000.00
2
55,000.00

10. 3
(4,000.00)
4
49,000.00
71321.57
=npv(rate,value1,value2,value3,value4)
=NPV(0.15,5000,55000,-4000,49000)
Divide the starting figure in year 0

11. Divide 71,321.47/100,000
This is the profitability index.
CHAPTER 10
When you see something highlighted in yellow – that is where I
want you to put an answer.
Concepts Review and Critical Thinking Questions
#5 ANSWER
3 questions
#6 ANSWER
QUESTIONS AND PROBLEMS
PROBLEM #1 (Hint), the original cost is not considered
because it is a sunk cost. Use the value today.
#1 ANSWER

12. #2 ANSWER
Sales of the new product line (portable camper):
(25,000 Units) x ($14,000 per Unit) =
Increased sales of the motor homes due to the new portable
camper introduction:
(2,400 Units) x ($68,000) =
Decreased sales of motor coachesdue to the new portable
camper introduction:
(1,100 Units) x ($105,000 per Unit) = (this will be a negative
number)
So, when evaluating this project, the amount to use as the
annual sales is:
X+X+X=XX
#4 To find the OCF, we need to complete the income
statement as follows:
Sales $ 682,900
Costs 437,800
Depreciation 110,400
EBIT $ ?
[email protected]% ?
Net income $ ?
The OCF for the company is:
OCF = EBIT + Depreciation – Taxes
OCF = ????
The depreciation tax shield is the depreciation times the tax
rate, so:
Depreciation tax shield = T(Depreciation)
Depreciation tax shield = ?
#9 Using the tax shield approach to calculating OCF
OCF = (Sales – Costs)(1 – T) + T(Depreciation)
OCF = ????

13. CHAPTER 11
CONCEPTS REVIEW AND CRITICAL THINKING
QUESTIONS
#7. Use the readings and videos to help you in answering this
question.
#9. Use the readings and videos to help you in answering this
question.
QUESTIONS AND PROBLEMS
Chapter 11
Problems #1, #2, #3, #7
When you see something highlighted in yellow – that is where I
want you to put an answer.
1.a. The total variable cost per unit is the sum of the two
variable costs, so:

14. Total variable costs per unit = Cost 1 + Cost 2
b. The total costs include all variable costs and fixed costs.
We need to make sure we are including all variable costs for the
number of units produced, so:
Total costs = Variable costs + Fixed costs
Total costs = XXXX
c. The cash breakeven, that is the point where cash flow is
zero, is:
QC = Fixed Costs / (Selling Price – Variable Cost)
QC = xxxxx units
And the accounting breakeven is:
QA = (Fixed Costs + depreciation)/ (Selling price-
Variable cost)
QA = XXXX units
2. The total costs include all variable costs and fixed costs.
We need to make sure we are including all variable costs for the
number of units produced, so:
Total costs = Be sure to include the variable and fixed
costs x number produced and then add in fixed costs.
Total costs = XXXX
The marginal cost, or cost of producing one more unit, is
the total variable cost per unit, so:
(this is the same as the variable cost per unit)
Marginal cost = XXXX
The average cost per unit is the total cost of production,

15. divided by the quantity produced, so:
Average cost = Total cost / Total quantity
Average cost = XXXX
Minimum acceptable total revenue = XXXX (how much it
costs to make those 5000 pairs)
3. The base-case, best-case, and worst-case values are shown
below. Remember that in the best-case, sales and price increase,
while costs decrease. In the worst-case, sales and price
decrease, and costs increase.
Unit
ScenarioUnit SalesUnit PriceVariable CostFixed Costs
Base XXXXXXX XXXXXX
Best XXXXXXX XXX XXX
Worst XXXXXXX XXXXXX
7. The cash breakeven equation is:
QC = FC/(P – v)
And the accounting breakeven equation is:
QA = (FC + D)/(P – v)
Using these equations, we find the following cash and
accounting breakeven points:
a. QC = XXXX QA = XXXX
b. QC = XXXX QA = XXXX
c. QC = XXXX QA = XXXX
PAYBACK METHOD
First you need to look at the amounts going out and the amounts
coming in.
How long will it take you to pay off the initial investment?
Here's a short example that you can follow for your assignment

16. YearAmt paid back
how much
more to go?
0-150000
14000040000-110000we paid back 40,000, but we still "owe"
110,000
23500075000-75000we paid back 75,000 total but we still 'owe"
75,000
3120000what portion of 120,000 do we need to get to 75,000?
2.63 years 75,000/120,0000.625
DISCOUNTED PAYBACK METHOD
15%Cash Flow ACash Flow ACash Flow BCash Flow B
YearCash Flow ACash Flow
BUndiscountedDiscountedUndiscountedDiscounted
0-350000-50000
1450002400045000$39,130.4324000put in formula to compute
present value
2650002200065000$49,149.3422000put in formula to compute
present value
3650001250065000$42,738.5612500put in formula to compute
present value
444000014600440000$251,571.4314600put in formula to
compute present value
HOW MANY YEARS???HOW MANY YEARS???
How do you get to the discounted cash flows? You have to use
the PV formula in Excel
=PV(0.15,1,0,-45000,0)
Always start the formula with an = sign. Once you put in the
PV and ( you will see some instructions.
First it asks for rate. Here I put in .15.
Then put in a comma
Then it asks for NPER. This is the number of periods. I put in
1. The reason I put in 1 was that I wanted the PV of 45,000 in 1
year
(When you compute for year2, you will put in 2, year 3, 3 etc)
Comma

17. Now it is asking for the payment. We do not have a payment,
so put in 0
Comma
Now it's asking for the amount you want the present value on.
I put in -45000. (you need to put in the negative sign because it
is money going away from you)
comma
put in a zero at the end
close the Parenthesis )
When you see something highlighted in yellow
–
that is where I want you to put an answer.
Chapter 9
–
Concepts Review and Critical Thinking Quesetions 1 & 7
#1
ANSWER
#7.
a.
ANSWER
b
.ANSWER
c
. ANSWER
Chapter 9

18. –
Questions and Problems
#14
You will need
to compute the NPV and IRR of this project. Please see my
excel help below.
A.
ANSWER based on NPV
B.
ANSWER based on calculation of IRR
When you see something highlighted in yellow – that is where I
want you to put an answer.
Chapter 9 – Concepts Review and Critical Thinking Quesetions
1 & 7
#1 ANSWER
#7.
a. ANSWER
b.ANSWER
c. ANSWER
Chapter 9 – Questions and Problems
#14
You will need to compute the NPV and IRR of this project.
Please see my excel help below.

19. A. ANSWER based on NPV
B. ANSWER based on calculation of IRR