Capital budgeting criteria A firm with a 13% WACC is evaluating two projects for

Question

Capital budgeting criteria

A firm with a 13% WACC is evaluating two projects for this year's capital budget. After-tax cash flows, including depreciation, are as follows:

Calculate NPV for each project. Round your answers to the nearest cent.
Project A    $   
Project B    $  

Calculate IRR for each project. Round your answers to two decimal places.
Project A      %
Project B      %

Calculate MIRR for each project. Round your answers to two decimal places.
Project A      %
Project B      %

Calculate payback for each project. Round your answers to two decimal places.
Project A      years
Project B      years

Calculate discounted payback for each project. Round your answers to two decimal places.
Project A      years
Project B      years

Explanation / Answer

Calculation of NPV

NPV=cash inflows-cash outflows

Project A =2000(PV5years @ 13%)-6000

=2000((1/1.13)1+(1/1.13)2+(1/1.13)3+(1/1.13)4+(1/1.13)5)-6000

=2000*3.52-6000

=7034-6000=1034

Project B =5600(PV5years @ 13%)-18000

=5600((1/1.13)1+(1/1.13)2+(1/1.13)3+(1/1.13)4+(1/1.13)5)186000

=5600*3.52-18000

=(80)

Calculation of Internal rate of return

IRR is the rate at which NPV is 0

0=2000(Pv5years, )-6000

Internal Rate of Return for Project A is 20%

Project B

0=5600(PV5years)-18000

Internal rate of Return for Project B is approximately 17%

Payback Period

Project A=6000/2000=3years

Project B=18000/5600= 3.21 years

Discounted Payback Period 1770+1566+1386+1226

Project A is approximately 4 years

Project B is after 5 years as the net NPV is negative.

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.