8. The cash flows for Project C is shown below with the appropriate cost of capi

Question

8. The cash flows for Project C is shown below with the appropriate cost of capital at 15.5 percent and the maximum allowable payback is three years.

Project C

TIME 0          1          2          3          4          5

Cash Flow      $ –910 $ 390   $ 490   $ 660   $ 280   $ 200

Compute the discounted payback period for Project C. Should the project be accepted or rejected?

9. The cash flows for Project E is shown below with the appropriate cost of capital at 8.5 percent.

    Project E

    TIME            0          1          2          3          4          5

Cash Flow      $ 1,100          $ 370   $ 450   $ 530   $ 340   $ 140

   Compute the IRR for Project E. (Round your answer to 2 decimal places. Omit the "%" sign in your response.) Using the IRR method, should the project be accepted or rejected?

10. Cash flows for Project I is given below and the appropriate cost of capital is 9.5 percent.

Project I

TIME    0          1          2          3          4

            Cash Flow       $ –12,300        $ 3,100            $ 4,500            $ 1,640            $ 2,850

Calculate the MIRR for Project I. (Round your answer to 2 decimal places. Omit the "%" sign in your response.) Using the MIRR method, should the project be accepted or rejected?

11. The cash flows for Project Z are shown below with the appropriate cost of capital at 11.5 percent.

Project Z

TIME   0          1          2          3          4          5

Cash Flow      –$ 930 $ 390   $ 500   $ 690   $ 150   $ 120

Compute the Profitability index for Project Z. (Round your answer to 2 decimal places. Omit the "%" sign in your response.) Using the profitability index, should the project be accepted or rejected?

Explanation / Answer

8. Project should be accepted as payback period of 2.48years is less than targeted payback period 3 years.

Where,
   A = Last period with a negative discounted cumulative cash flow;
   B = Absolute value of discounted cumulative cash flow at the end of the period A;
   C = Discounted cash flow during the period after A.

Payback period = 2+$205.03/428.35 = 2+0.4786 = 2.48 years.

9.IRR of project E is 13% which is greater than cost of capital 8.5% so the project should be accepted.

By using IRR function in excel we can find IRR of cashflow 13%.

10.MIRR of project I is 3.49% which is less than cost of capital 9.5% so the project should not be accepted.

MIRR = (14,111.50/12,300)1/4 -1

=1.0349-1

=0.0349 or 3.49%

11. Profitability index for Project Z is 1.52 which is greator than 1 so the project should be accepted.

Profitability index for Project Z = Present value of all future cashflows/ intial investment

=$1416.4/ $930

= 1.52

Year Cash flow$ PVIF = 15.5% Discouted cash flow$ Cumulative Discounted Cash flow$ 0     (910)           1.0000       (910.00)          (910.00) 1        390           0.8658          337.66          (572.34) 2        490           0.7496          367.31          (205.03) 3        660           0.6490          428.35            223.32 4        280           0.5619          157.34            380.66 5        200           0.4865            97.30            477.9

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