# finance data bank

Question # 00004677 Posted By: spqr Updated on: 12/05/2013 04:53 AM Due on: 12/30/2013
Subject Finance Topic Finance Tutorials:
Question

12-1 Finding the NPV

A project has an initial cost of \$40,000, expected net cash inflows of \$9,000 per year for 7 years, and a cost of capital of 11 %. What is the project’s NPV? (Hint: Begin by constructing a time line.)

12-2 IRR

12-3 MIRR

Step 1: FV=?= 88049.47; PMT=-9000;N=7;I/Y= 11; PV=0 Step 2: FV=88049.47; PMT=;N=7;I/Y=

12-5 Projected Payback Period

12-6 Discounted Payback

 year project a project B 1 \$ 5,000,000 \$20,000,000 2 \$10,000,000 \$10,000,000 3 \$20,000,000 \$6,000,000

12-7 NPV

Your division is considering two investment projects, each of which requires an up-front expenditure of \$15 million. You estimate that the investments will produce the following net cash flows: a. What are the two projects’ net present values, assuming the cost of capital

is 5%? 10%? 15%?

b. What are the two projects’ IRRs at these same costs of capital

12-8 NPV, IRRS, and MIRR for Independent Projects

 year truck pulley 1 \$5,100 \$7,500 2 5,100 7,500 3 5,100 7,500 4 5,100 7,500 5 5,100 7,500

Edelman Engineering is considering including two pieces of equipment, a truck and an overhead pulley system, in this year’s capital budget. The projects are independent. The cash outlay for the truck is \$17,100 and that for the pulley system is \$22,430. The firm’s cost of capital is 14%. After-tax cash flows, including depreciation, are as follows:

0 1-5 IRR= MIRR= NPV=

Truck: -17,100 5,100

Pulley: -22,430 7,500

R=14%

12-11 MIRR & NPV

 year X y 0 -\$5,000 -\$5,000 1 1 ,000 4,500 2 1 ,500 1 ,500 3 2,000 1 ,000 4 4,000 500

Your company is considering two mutually exclusive projects, X and Y, whose costs and cash flows are shown below:

The projects are equally risky, and their cost of capital is 12%. You must make a recommendation, and you must base it on the modified IRR (MIRR). Which project has the higher MIRR?

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1. ## Solution: finance data bank

Tutorial # 00004477 Posted By: spqr Posted on: 12/05/2013 05:07 AM
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Gero...ton1 Deep research and proficient editing 02/16/2014

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