This homework submission should include all calculations for part (a), completed
ID: 2601173 • Letter: T
Question
This homework submission should include all calculations for part (a), completed on the designated tab of the Homework Student Workbook, and a document explaining the implications of your findings for the business or business transaction. After reading the assigned chapters, respond to the following:
You are a financial analyst for the Brittle Company. The director of capital budgeting has asked you to analyze two proposed capital investments: Projects X and Y. Each project has a cost of $10,000, and the cost of capital for each is 12%. The projects' expected net cash flows are shown in the table below.
Expected Net Cash Flows
Year
Project X
Project Y
0
– $10,000
– $10,000
1
6,500
3,500
2
3,000
3,500
3
3,000
3,500
4
1,000
3,500
Use the Homework Student Workbook to calculate each project's net present value (NPV), internal rate of return (IRR), modified internal rate of return (MIRR), and profitability index (PI).
Which project or projects should be accepted if they are independent?
Which project or projects should be accepted if they are mutually exclusive?
Year
Project X
Project Y
0
– $10,000
– $10,000
1
6,500
3,500
2
3,000
3,500
3
3,000
3,500
4
1,000
3,500
Explanation / Answer
project X
Year
cash flow
present value of cash flow = cash flow/(1+r)^n r= 12%
0
-10000
1
6500
5803.571
2
3000
2391.582
3
3000
2135.341
4
1000
635.5181
sum of present value of cash inflow
10966.01
cash outflow
-10000
Net present value
966.0119
Profitability Index
sum of present value of cash inflow/cash outflow
10966.01/10000
1.096601
IRR =using irr function in ms excel spreadsheet
irr(-10000,6500,3000,3000,1000)
18.03%
MIRR
Year
-10000
1
6500
6500*(1.12)^3
9132.032
2
3000
3000*(1.12)^2
3763.2
3
3000
3000*(1.12)^1
3360
4
1000
1000*(1.12)^0
1000
sum of future value of cash inflow
17255.23
present value of cash outflow
10000
MIRR = (future value of cash inflow/cash outflow)^(1/n) -1
(17255.23/10000)^(1/5) -1
11.53%
project Y
Year
cash flow
present value of cash flow = cash flow/(1+r)^n r= 12%
0
-10000
1
3500
3125
2
3500
2790.179
3
3500
2491.231
4
3500
2224.313
sum of present value of cash inflow
10630.72
cash outflow
-10000
Net present value
630.7227
Profitability Index
sum of present value of cash inflow/cash outflow
10630.72/10000
1.063072
IRR =using irr function in ms excel spreadsheet
irr(-10000,3500,3500,3500,3500)
14.96%
MIRR
Year
-10000
1
3500
3500*(1.12)^3
4917.248
2
3500
3500*(1.12)^2
4390.4
3
3500
3500*(1.12)^1
3920
4
3500
3500*(1.12)^0
3500
sum of future value of cash inflow
16727.65
present value of cash outflow
10000
MIRR = (future value of cash inflow/cash outflow)^(1/n) -1
(16727.65/10000)^(1/5) -1
10.84%
Project X
Project Y
Project if they are independent
NPV
966.0119
630.7227
Accept X
PI
1.096601
1.063072
Accept X
IRR
18.03%
14.96%
Accept X
MIRR
11.53%
10.84%
No selection
project X
Year
cash flow
present value of cash flow = cash flow/(1+r)^n r= 12%
0
-10000
1
6500
5803.571
2
3000
2391.582
3
3000
2135.341
4
1000
635.5181
sum of present value of cash inflow
10966.01
cash outflow
-10000
Net present value
966.0119
Profitability Index
sum of present value of cash inflow/cash outflow
10966.01/10000
1.096601
IRR =using irr function in ms excel spreadsheet
irr(-10000,6500,3000,3000,1000)
18.03%
MIRR
Year
-10000
1
6500
6500*(1.12)^3
9132.032
2
3000
3000*(1.12)^2
3763.2
3
3000
3000*(1.12)^1
3360
4
1000
1000*(1.12)^0
1000
sum of future value of cash inflow
17255.23
present value of cash outflow
10000
MIRR = (future value of cash inflow/cash outflow)^(1/n) -1
(17255.23/10000)^(1/5) -1
11.53%
project Y
Year
cash flow
present value of cash flow = cash flow/(1+r)^n r= 12%
0
-10000
1
3500
3125
2
3500
2790.179
3
3500
2491.231
4
3500
2224.313
sum of present value of cash inflow
10630.72
cash outflow
-10000
Net present value
630.7227
Profitability Index
sum of present value of cash inflow/cash outflow
10630.72/10000
1.063072
IRR =using irr function in ms excel spreadsheet
irr(-10000,3500,3500,3500,3500)
14.96%
MIRR
Year
-10000
1
3500
3500*(1.12)^3
4917.248
2
3500
3500*(1.12)^2
4390.4
3
3500
3500*(1.12)^1
3920
4
3500
3500*(1.12)^0
3500
sum of future value of cash inflow
16727.65
present value of cash outflow
10000
MIRR = (future value of cash inflow/cash outflow)^(1/n) -1
(16727.65/10000)^(1/5) -1
10.84%
Project X
Project Y
Project if they are independent
NPV
966.0119
630.7227
Accept X
PI
1.096601
1.063072
Accept X
IRR
18.03%
14.96%
Accept X
MIRR
11.53%
10.84%
No selection
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