Bolman corporation is considering an expansion project that will begin next year
ID: 2789988 • Letter: B
Question
Bolman corporation is considering an expansion project that will begin next year ( time 0). Bolman cost of capital is 12%. Reinvestment rate is 15%. The initial cost of the project will be $250,000 and it is expected to generate the following cash flows over its five-year life:
year $
1 $40,000
2 $60,000
3 $90,000
4 $90,000
5 $90,000
1. What is the payback period for the expansion project?
a. 3.67 years
b. 4.00 years
c. 4.25 years
d. 4.67 years
e. 5.00 years
2. what is the discounted payback period for the expansion project?
a. 3.50 years
b. 4.00 years
c. 4.88 years
d. 5.0 years
e. 5.83 years
3. What is the net present value (NPV) of for the expansion project?
a. ($45,197)
b. $ 5,871
c. $ 13,784
d. $ 25,726
e. $120,000
4. what is the Modified Internal Rate of Return ( MIRR ) for the expansion project?
a. 10.63%
b. 12.96%
c. 13.64%
d. 14.00%
e. 14.25%
5. what is the Modified Net Present Value ( MNPV ) for the expansion project?
a. $268,811
b. $119,025
c. $25,726
d. $18,811
e. $5,871
Explanation / Answer
In case of Multiple question chegg expert need to answer first 4 question
Answer 1 correct answer is A 3.67 years
Answer 2 Correct answer is C 4.88 years
Answer 3 Correct answer is B $5871
Answer 4 Correct answer is C,13.64%
Using Financial Calculator(Professional)
CF0=-250,000 (press enter) Press down key
CF1=40,000 (press enter) Press down key
F01=1 (press enter) Press down key
CF2= 60,000 (press enter) Press down key
F02=1 (press enter) Press down key
CF3= 90,000 (press enter) Press down key
F03=3 (press enter) Press down key
Press NPV
Interest =12 (press enter) Press down key
NPV=5871.18
Press Scroll down two time press CPT
Payback Period=3.67
Press Scroll down again press CPT
Discounted pay back=4.885
Press IRR Press CPT
Press Down key
RI=15
Press Down key
MIRR=13.64%
Using excel
Year Cash flow cumulative cash flow discounted cash flow(cash flow/(1+r)^N Cumulative cash flow 0 -250000 -250000 -250000 -250000 1 40000 -210000 35714.29 -214286 2 60000 -150000 47831.63 -166454 3 90000 -60000 64060.22 -102394 4 90000 30000 57196.63 -45197.2 5 90000 120000 51068.42 5871.185 NPV(using NPV function in excel) 5242.13 Payback period 3+60000/90000 Payback period 3.666 years Discounted payback period 4+45197.2/51068.42 Discounted payback period 4.89 MIRR(use MIRR function in excel) 13.64%