Problem 11-1 NPV Project K costs $55,000, its expected cash inflows are $13,000

Question

Problem 11-1
NPV

Project K costs $55,000, its expected cash inflows are $13,000 per year for 7 years, and its WACC is 13%. What is the project's NPV? Round your answer to the nearest cent.

$

Problem 11-2
IRR

Project K costs $55,086.59, its expected cash inflows are $12,000 per year for 9 years, and its WACC is 10%. What is the project's IRR? Round your answer to two decimal places.

%

Problem 11-3
MIRR

Project K costs $50,000, its expected cash inflows are $11,000 per year for 8 years, and its WACC is 11%. What is the project's MIRR? Round your answer to two decimal places.

%

Problem 11-13
MIRR

A firm is considering two mutually exclusive projects, X and Y, with the following cash flows:

The projects are equally risky, and their WACC is 9.0%. What is the MIRR of the project that maximizes shareholder value? Round your answer to two decimal places.

%

Problem 11-4
Payback period

Project K costs $40,000, its expected cash inflows are $14,000 per year for 7 years, and its WACC is 9%. What is the project's payback? Round your answer to two decimal places.

  years

Explanation / Answer

11-1> NPV=PV of Annuity 13000(N=7,i=13)-55000=4.4226*13000-55000 2493.8 11-2> Discounted@10% Cash Outflow 55086.59 -55086.6 Cash Inflow 12000 10909.09 12000 9917.36 12000 9015.78 12000 8196.16 12000 7451.06 12000 6773.69 12000 6157.90 12000 5598.09 12000 5089.17 IRR 6% 11-3> Compounded@10% Cash Outflow -50000 -50000 Cash Inflow 11000 12210.00 11000 20574.56 11000 18535.64 11000 16698.77 11000 15043.94 11000 13553.10 11000 12210.00 11000 11000.00 Total FV of Cash Inflow 119826.02 50000(1+MIRR)^8=119826.02 or (1+MIRR)^8=119826.02/50000 2.397 or 1+MIRR=Power Root of 1.397 1.1154 or MIRR=1.1154-1 0.1154 or 11.54% 11-13> Project X, FV of Inflows=100*1.09^3+320*1.09^2+430*1.09^1+700*1.09^0 1678.39 1000*(1+MIRR)^4=1678.39 1+MIRR 1.1382 MIRR 13.82% Project Y, FV of Inflows=1100*1.09^3+90*1.09^2+50*1.09^1+50*1.09^0 1635.96 1000*(1+MIRR)^4=1635.96 1+MIRR 1.1311 MIRR 13.11% So Project X is better with higher MIRR 11-4> PV Cumulative Cash Outflow -40000 -40000 -40000 Cash Inflow 14000 12844.04 -27155.96 14000 11783.52 -15372.44 14000 10810.57 -4561.87 14000 9917.95 5356.08 14000 9099.04 14455.12 14000 8347.74 22802.86 14000 7658.48 30461.34 Payback Period=3+(4561.87/9917.95) 3.46

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