Calculate the NPV for the following projects: Discount rate = 12% CB: Techniques
ID: 2758278 • Letter: C
Question
Calculate the NPV for the following projects: Discount rate = 12%
CB: Techniques, unequal lives, NPV profile
Period
A
B
C
D
E
F
0
-70000
-78000
-150000
-180000
-235000
-310000
1
30000
22000
48000
80000
50000
90000
2
30000
32000
74000
70000
60000
90000
3
30000
38000
85000
60000
70000
90000
4
30000
46000
60000
80000
90000
5
60000
90000
90000
NPV
IRR
Rank / NPV
Rank / IRR
ANPV
Replacement Chain
A
B
C
D
E
F
What is the optimal capital budget?
Using NPV and a budget of $700000, what is the size of the optimal capital budget?
Using IRR and a budget of $700000, what is the size of the optimal capital budget?
5) Use the following table to determine the statistics of the project. (project risk)
Probability
NPV Project A
NPV Project B
.35
23,435
38,000
.50
21,120
14,000
.15
9,209
3,000
Project A
Project B
Expected NPV
Standard Deviation
Coefficient of Variation
6) Given projects A and B in the table for problem 1, which project is preferable?
CB: Project analysis
Period
A
B
C
D
E
F
0
-70000
-78000
-150000
-180000
-235000
-310000
1
30000
22000
48000
80000
50000
90000
2
30000
32000
74000
70000
60000
90000
3
30000
38000
85000
60000
70000
90000
4
30000
46000
60000
80000
90000
5
60000
90000
90000
Explanation / Answer
NPV
IRR
Rank / NPV
Rank / IRR
ANPV
Replacement Chain
A
21,120
25.68%
3
2
6,953
48,493
B
23,435
23.96%
2
3
7,715
53,808
C
12,351
16.31%
5
4
5,142
31,853
D
62,116
26.08%
1
1
E
9,209
13.42%
6
6
F
14,430
13.86%
4
5
2)
Optimal capital budget $1,023,000
3)
Optimal capital budget $478,000
4)
Optimal capital budget? $638,000
5)
Project A
Project B
Expected NPV
20,136
20,750
Standard Deviation
4,712
13,198
Coefficient of Variation
.234
.636
6)Project A
NPV
IRR
Rank / NPV
Rank / IRR
ANPV
Replacement Chain
A
21,120
25.68%
3
2
6,953
48,493
B
23,435
23.96%
2
3
7,715
53,808
C
12,351
16.31%
5
4
5,142
31,853
D
62,116
26.08%
1
1
E
9,209
13.42%
6
6
F
14,430
13.86%
4
5
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