A firm with a 14% WACC is evaluating two projects for this year\'s capital budge

Question

A firm with a 14% 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

NPV

project A-

-24000 + 8000*PVIFA(0.14,5)

= -24000 + 8000*[1 - 1.14^-5]/0.14

= 3464.65

project B-

-72000 + 22400*PVIFA(0.14,5)

= 4901.01

IRR-

project A-

8000*PVIFA(r,5) = 24000

=> 8000*[1 - (1+r)^-5]/r = 24000

=> r = 19.86%

project B-

22400*PVIFA(0.14,5) = 72000

=> r = 16.80

as only one cash outflow -

so,

MIRR = IRR

for both projects.

payback-

project A-

24000 - (8000 + 8000 + 8000 ) =0

so, 3 years

project B-

72000 - 22400 * 3 = 4800

so,

payback = 3 + (4800/22400) = 3.214 years

discounted payback-

project A-

24000 - 8000*PVIFA(0.14,4) = 690.30

now,

8000/(1.14^5) = 4154.95

so,

discounted payback = 4+(690.30/4154.95) = 4.166 years

project B-

72000 -22400*PVIFA(0.14,4) = 6732.84

224000/(1.14^5) = 11633.86

so,

discounted payback = 4+(6732.84/11633.86) = 4.579 years

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