finance data bank

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?