CAPITAL BUDGETING CRITERIA A firm with a 14% WACC is evaluating two projects for
ID: 2616206 • Letter: C
Question
CAPITAL BUDGETING CRITERIA A firm with a 14% 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 M -$12,000 $4,000 $4,000 $4,000 $4,000 $4,000
Project N -$36,000 $11,200 $11,200 $11,200 $11,200 $11,200
Calculate NPV for each project. Round your answers to the nearest cent. Do not round your intermediate calculations. Project M $ Project N $ Calculate IRR for each project. Round your answers to two decimal places. Do not round your intermediate calculations.
Project M %
Project N %
Calculate MIRR for each project. Round your answers to two decimal places. Do not round your intermediate calculations.
Project M %
Project N %
Calculate payback for each project. Round your answers to two decimal places. Do not round your intermediate calculations.
Project M years
Project N years
Calculate discounted payback for each project. Round your answers to two decimal places. Do not round your intermediate calculations.
Project M years
Project N years
Explanation / Answer
Calculation of NPV
For computing the NPV take discounting factors in column - 2. CF = Cash flows as given and PV is present value obtained by multiplying CF with DF ( Discounting factor)
CALCULATION OF PAY BACK PERIOD
Project - M = Investment / cash flow = 12000 / 4000 = 3 years
Project - N = 36000 / 11200 = 3.21 years
Calculation of Post Pay back period
Project - M
POST PAYBACK = 4 + 345.151 / 2077.475 = 4.17 Years.
Project - N
POST PAYBACK PERIOD = 4 + 3366.42 / 5816.929 = 4.58 Years
PROJECT - M PROJECT - N YEAR DF CF PV CF PV 0 1 -12000 -12000 -36000 -36000 1 0.877193 4000 3508.772 11200 9824.561 2 0.769468 4000 3077.87 11200 8618.036 3 0.674972 4000 2699.886 11200 7559.681 4 0.59208 4000 2368.321 11200 6631.299 5 0.519369 4000 2077.475 11200 5816.929 NPV 1732.32 NPV 2450.51Related Questions
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