Year/Project A/ProjectB
1$ (43,500.00)$ (43,500.00)
2 $ 21,400.00 $ 6,400.00
3 $ 18,500.00 $ 14,700.00
4 $ 13,800.00 $ 22,800.00
5 $ 7,600.00 $ 25,200.00
1. Using the above cash flows, calculate the following for each project. Assume a 11% required return a. NPV b. Payback Period c. Discounted Payback Period d. IRR e. MIRR (Combination Approach: Use discount rate given and reinvestment rate of 8%) 2. Assuming independent projects, provide an accept/reject decision for each capital budgeting tool a. Assume payback period criteria is 2.5 years b. Assume discounted payback period criteria is 3 years 3. Assuming mutually exclusive projects, which project should be selected? Why?
Year/Project A/ProjectB
1$ (43,500.00)$ (43,500.00)
2 $ 21,400.00 $ 6,400.00
3 $ 18,500.00 $ 14,700.00
4 $ 13,800.00 $ 22,800.00
5 $ 7,600.00 $ 25,200.00
1. Using the above cash flows, calculate the following for each project. Assume a 11% required return a. NPV b. Payback Period c. Discounted Payback Period d. IRR e. MIRR (Combination Approach: Use discount rate given and reinvestment rate of 8%) 2. Assuming independent projects, provide an accept/reject decision for each capital budgeting tool a. Assume payback period criteria is 2.5 years b. Assume discounted payback period criteria is 3 years 3. Assuming mutually exclusive projects, which project should be selected? Why?
Related questions
Problem 11-7
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 | -$30,000 | $10,000 | $10,000 | $10,000 | $10,000 | $10,000 |
| Project B | -$90,000 | $28,000 | $28,000 | $28,000 | $28,000 | $28,000 |
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
Assuming the projects are independent, which one or ones would you recommend?
If the projects are mutually exclusive, which would you recommend?
Notice that the projects have the same cash flow timing pattern. Why is there a conflict between NPV and IRR?
