project cost exclusive PI ratio PI rank CE PI ratio CE PI rank - overall budget
ID: 2801678 • Letter: P
Question
project cost exclusive PI ratio PI rank CE PI ratio CE PI rank - overall budget 3 project 1 1 $ (20) x 2(19) x 3 $(7) 4 $ (9) 5$ (20) 6 $ (20) 7 $(7) Instagram ads WACC 1.03 Mutually exclusive with project 2 cash flows valuesPV CE PV 10/2/17 PV investment cost 10/2/18 FV cash inflow 10/2/19 FV cash inflow 10/1/20 FV cash inflow (20)(20) probability CE PV 9.5 8.5 $ 7.5 S 90% $ 90% $ 90% $ 7.63 6.10 4.80 50.6 14% 12 13 14 15 16 3 year payback PI ratio CE NPV CE PI ratico 0.93 project 2 Snapchat Ads WACC 12% 18 19 Year 20 Mutually exclusive with project 1 cash flows values $ PV (19) 10/2/17 PV investment cost 10/2/18 FV cash inflow 10/2/19 FV cash inflow 10/1/20 FV cash inflow probability CE PV 88% You are the capital budgeting team for a movie production company. Your budget is $44 million. You are evaluating 7 advertising platforms to generate sales for a new movie. The total investment required to do all seven projects is $102 million. Therefore your team must decide which projects to fund and which not to fund this year 84% 26 3 year payback PI ratio CE NPV CE PI ratio Please run through npv, IRR, 3 year payback, Pl ratio, CE NPV and CE PI while evaluating these projects. Notice the WACC for each project is specified in the project tables 30Explanation / Answer
B C D E F G 2 Project 2 3 WACC 12% 4 5 Year Cash flows PV of cash flows Prob. CE Cash flows 6 =C7/1.12^B7 =D7*E7 7 0 -19 -19 1 -19 8 1 8 7.142857 0.88 6.285714 9 2 7 5.580357 0.86 4.799107 10 3 6 4.270681 0.84 3.587372 11 -2.0061 -4.32781 12 13 Sum of PV of cash Inflows 16.9939 14.67219 14 Less : Initial investment 19 19 15 NPV -2.0061 CE NPV -4.32781 16 17 PI = Sum of pv of Cash inflow/ Initial investment= 18 PI = 0.894416 19 =D13/D14 20 CE PI = Sum of pv of CE Cash inflow/ Initial investment= 21 0.772221 22 =F13/F14 23 24 Payback period = 25 Year Cash flows Cumulative cashflow 26 27 0 -19 0 28 1 8 8 29 2 7 15 30 3 6 21 31 32 Payback period = 2 + (19-15)/6 33 2.666667 34 35 IRR Excel formula 36 5.4459% 37 =IRR(C27:C30) 38
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