Capital budgeting criteria A firm with a 13% WACC is evaluating two projects for

Question

Capital budgeting criteria A firm with a 13% WACC is evaluating two projects for this year's capital budget. After-tax cash flows, including depreciation, are as follows: 0...................1.................2..................3..................4...................5 Project A: $-9000 $3,000 $3,000 $3,000 $3,000 $3,000 Project B: $-27,000 $8,400 $8,400 $8,400 $8,400 $8,400 1. Calculate NPV for each project. Round your answers to the nearest cent. Project A $_________ Project B $_________ Calculate IRR for each project. Round your answers to two decimal places. Project A _________% Project B _________ % Calculate MIRR for each project. Round your answers to two decimal places. Project A _________% Project B _________ % Calculate payback for each project. Round your answers to two decimal places. Project A _________ years Project B _________ years Calculate discounted payback for each project. Round your answers to two decimal places. Project A _________ years Project B _________ years

Explanation / Answer

Project A: $-9000 $3,000 $3,000 $3,000 $3,000 $3,000 Project B: $-27,000 $8,400 $8,400 $8,400 $8,400 $8,400 1. Calculate NPV for each project. Round your answers to the nearest cent. Project A = NPV(Rate,CF1...CF5) +CF0 So NPVa = NPV(13%,3000,3000,3000,3000,3000) - 9000 = $1,552 Project B=NPV(13%,8400,8400,8400,8400,8400) - 27000 = $2,545 Calculate IRR for each project. Round your answers to two decimal places. Project A =IRR(CFs) = IRR(-9000,3000,3000,3000,3000,3000) = 19.86% Project B = IRR(-27000,8400,8400,8400,8400,8400) = 16.80% Calculate MIRR for each project. Round your answers to two decimal places. Project A =MIRR(CFs,Fin Rate, Reinvest Rate) so MIRRa = MIRR(-9000,3000,3000,3000,3000,3000,13%,13%) = 16.65% Project B = MIRR(-27000,8400,8400,8400,8400,8400,13%,13%) = 15.05% Calculate payback for each project. Round your answers to two decimal places. Project A PBP = Inital Inv/Annual CF = 9000/3000 = 3.00 years Project B = 27000/8400 = 3.21 years Calculate discounted payback for each project. Round your answers to two decimal places. Project A : DCF = 3000/(1+13%)^1 + 3000/(1+13%)^2+3000/(1+13%)^3 + 3000/(1+13%)^4 Ie DCFa = $8923 & Y5 CF = 3000/(1+13%)^5 = $1,628 So DPBP Proj A= 4 + (9000-8923)/ $1,628 = 4.05 Yrs DCFb = 8400/(1+13%)^1 + 8400/(1+13%)^2 + 8400/(1+13%)^3 + 8400/(1+13%)^4 ie DCFb = $24,986 & Y5DCF = 8400/(1+13%)^5 = $4,559 So DPBP Proj B = 4 + (27000- $24,986)/ $4,559 = 4.44 Yrs

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---