CAPITAL BUDGETING CRITERIA
A firm with a 13% WACC is evaluating two projects for this year's capital budget. After-tax cash flows, including depreciation, are as follows:
0 | 1 | 2 | 3 | 4 | 5 |
Project M | -$27,000 | $9,000 | $9,000 | $9,000 | $9,000 | $9,000 |
Project N | -$81,000 | $25,200 | $25,200 | $25,200 | $25,200 | $25,200 |
Calculate NPV for each project. Round your answers to the
nearest cent. Do not round your intermediate calculations.
Project M $
Project N $
Calculate IRR for each project. Round your answers to two
decimal places. Do not round your intermediate calculations.
Project M %
Project N %
Calculate MIRR for each project. Round your answers to two
decimal places. Do not round your intermediate calculations.
Project M %
Project N %
Calculate payback for each project. Round your answers to two
decimal places. Do not round your intermediate calculations.
Project M years
Project N years
Calculate discounted payback for each project. Round your
answers to two decimal places. Do not round your intermediate
calculations.
Project M years
Project N years
1.
=PV(13%,5,-9000)-27000=4655.08135388432
2.
=PV(13%,5,-25200)-81000=7634.2277908761
3.
=RATE(5,-9000,27000)=19.8577097872901%
4.
=RATE(5,-25200,81000)=16.79762142126%
5.
=MIRR({-27000;9000;9000;9000;9000;9000},13%,13%)=16.6525877743356%
6.
=MIRR({-81000;25200;25200;25200;25200;25200},13%,13%)=15.0540028356927%
7.
=27000/9000=3.00
8.
=81000/25200=3.21428571428571
9.
Both projects would be accepted since both of their NPV's are
positive
10.
If the projects are mutually exclusive, the project with the
highest positive NPV is chosen. Accept Project N
11.
The conflict between NPV and IRR occurs due to the difference in
the size of the projects
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