Question

ABC Corporation is considering a project that provides the following cash flows steam: Year 0 1...

  1. ABC Corporation is considering a project that provides the following cash flows steam:

Year

0

1

2

3

4

5

Cash flows

-$1,000

$375

$425

$250

$110

$100

  1. If WACC is 10%, what is NPV, and should the company accept the project?
  2. Find IRR, MIRR, payback, and discounted payback period.

Homework Answers

Answer #1

a. Since WACC is 10%, we use the NPV formula.

NPV = -1000 + 375/1.1 + 425/1.1^2 + 250/1.1^3 + 110/1.1^4 + 100/1.1^5 = 17.201.

Hence, the company should accept the project as NPV is positive.

b. The IRR can be calculated by hit-and-trial or by excel. We use excel and find that IRR = 10.866%.

The MIRR as obtained from excel is = 10.3758%.

The payback period will lie between years 2 and 3. The value will be = 2 + (1000-375-425)/250 = 2.8 years.

The discounted payback will be calculated accroding to each discounted cash flow:

-1000, 375/1.1 = 340.91, 425/1.1^2 = 351.24, 250/1.1^3 = 187.8287, 110/1.1^4 = 75.131, 100/1.1^5 = 62.09.

Hence, we can see that the discounted payback period will lie between the years 4 and 5. It will be = 4 + (1000-340.91 - 351.24 - 187.8287 - 75.131)/62.09 = 4.722 years.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
ABC Corporation is considering a project that provides the following cash flows steam: Year 0 1...
ABC Corporation is considering a project that provides the following cash flows steam: Year 0 1 2 3 4 5 Cash flows -$1,000 $375 $425 $250 $110 $100 If WACC is 10%, what is NPV and should the company accept the project? Find IRR, MIRR, payback, and discounted payback period. Considering the following projects. Project Year 0 1 2 3 4 A Cash flows -$100 $35 $35 $35 $35 B Cash flows -$100 $60 $50 $40 $30 Project A has...
Polk Products is considering an investment project with the following cash flows (in 000s): Year 0...
Polk Products is considering an investment project with the following cash flows (in 000s): Year 0 Year 1 Year 2 Year 3 Cashflow -100 90 90 30 The company has a 10% cost of capital. What is the payback period for the project? What is the discounted payback period for the project? What is the IRR for the project? What is the NPV for the project? What is the MIRR for the project?                                           PLEASE SHOW STEPS AND SOLUTION
Telesis Corp is considering a project that has the following cash flows: Year Cash Flow 0...
Telesis Corp is considering a project that has the following cash flows: Year Cash Flow 0 -$1,000 1 400 2 300 3 500 4 400 The company’s weighted average cost of capital (WACC) is 10%. What are the project’s payback period (Payback), internal rate of return (IRR), net present value (NPV), and profitability index (PI)? A. Payback = 3.5, IRR = 10.22%, NPV = $1260, PI=1.26 B. Payback = 2.6, IRR = 21.22%, NPV = $349, PI=1.35 C. Payback =...
Gardial Fisheries is considering two mutually exclusive investments. The projects' expected net cash flows are as...
Gardial Fisheries is considering two mutually exclusive investments. The projects' expected net cash flows are as follows: Expected Net Cash Flows Time Project A Project B 0 ($375) ($575) 1 ($300) $190 2 ($200) $190 3 ($100) $190 4 $600 $190 5 $600 $190 6 $926 $190 7 ($200) $0 a. If each project's cost of capital is 12%, which project should be selected? If the cost of capital is 18%, what project is the proper choice? @ 12% cost...
A project has the following annual net cash flows: Year 0: -19,000 Year 1: 8,000 Year...
A project has the following annual net cash flows: Year 0: -19,000 Year 1: 8,000 Year 2: 11,000 Year 3: 6,000 Year 4: 4,500 1.The firm's WACC is 14%. Calculate IRR. 2. Calculate MIRR for the project in the previous problem. 3. Calculate the project's NPV. (Round to the nearest cent) 4. Calculate the project's EAA. 5. Calculate the project's payback period. 6. Calculate the project's discounted payback period. (Round to two decimal places)
Company ABC is considering a project with the following projected cash flows (in thousands): Year 0:...
Company ABC is considering a project with the following projected cash flows (in thousands): Year 0: -$60 Year 1: 10 Year 2: 20 Year 3: 30 Year 4: 40 Year 5: -$25 a. Assuming a 10% hurdle rate, the NPV for the project is b. Assuming a 10% hurdle rate, the IRR for company ABC project is: c. Based on the NPV calculation (10% hurdle rate) , should company ABC undertake the project d. Based on the IRR calculation (10%...
Braun Industries is considering an investment project which has the following cash flows: Year Cash Flow...
Braun Industries is considering an investment project which has the following cash flows: Year Cash Flow 0 -$1,000 1 400 2 300 3 500 4 400 The company's WACC is 10 percent. What is the project's payback, internal rate of return, and net present value? Select one: a. Payback = 2.6, IRR = 21.22%, NPV = $300. b. Payback = 2.6, IRR = 21.22%, NPV = $260. c. Payback = 2.4, IRR = 10.00%, NPV = $600. d. Payback =...
Year 0 1 2 3 4 5 6 Project A CF -350 -250 175 225 375...
Year 0 1 2 3 4 5 6 Project A CF -350 -250 175 225 375 450 125 Project B CF -1000 125 250 300 550 500 200 WACC = 12% a. Calculate the NPV of Project A.? b. Calculate the IRR of Project A.? c. Calculate the MIRR of Project A.? d. Calculate the Payback Period for Project B.? e. Calculate the Discounted Payback Period for Project B.? f. Calculate the EAA for Project B.? g. Calculate the crossover...
You are considering a project with the following set of cash flows: Cash flow 0 -5,500...
You are considering a project with the following set of cash flows: Cash flow 0 -5,500 1 2,000 2 3,000 3 1,000 4 2,000 a. What is the payback period of this project? If the pre-specified cut off is 3 years, should this project be accepted? b. What is the discounted payback period of this project? If the pre-specified cut off is 3 years, should this project be accepted? The discount rate is 10%.
Talent Inc. is considering a project that has the following cash flow and WACC data. WACC:...
Talent Inc. is considering a project that has the following cash flow and WACC data. WACC: 8% Year 0 1 2 3 Cash flows -$1,200 $400 $500 $500 (1) What is the project's NPV? (2) What is the project's IRR? (3) What is the project's Payback Period? (4) What is the project's Discounted Payback Period?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT