Question

A firm is planning a new project that is projected to yield
cash flows of - $595,000 in Year 1, $586,000 per year in Years 2
through 5, and $578,000 in Years 6 through 11. This investment will
cost the company $2,580,000 today (initial outlay). We assume that
the firm's cost of capital is 11%.

1. Compute the projects payback period, net present value
(NPV), profitability index (PI), internal rate of return (IRR), and
modified internal rate of return (MIRR). and discuss whether the
project should be taken.

Answer #1

Capital Budgeting Analysis :
A firm is planning a new project that is projected to yield cash
flows of - $595,000 in Year 1, $586,000 per year in Years 2 through
5, and $578,000 in Years 6 through 11. This investment will cost
the company $2,580,000 today (initial outlay). We assume that the
firm's cost of capital is 11%.
(1) Draw a timeline to show the cash
flows of the project.
(2) Compute the project’s payback
period, net present value...

A project has the following total (or net) cash flows.
__________________________________________
Year Total
(or net) cash flow
_________________________________________
1 $20,000
2 30,000
3 50,000
4 60,000
_________________________________________
The required rate of return on the project is 15 percent. The
initial investment (or initial cost or initial outlay) of the
project is $80,000.
a) Find the net present value (NPV) of the project.
b) Find the profitability index (PI) of the project.
c) Calculate the modified internal rate...

2. A company is considering a project that has the following
cash flows: C0 = -3,000, C1 = +900, C2 = +500, C3 = +1,100, and C4
= +1,900, with a risk-adjusted discount rate of 8%. A) Calculate
the Net Present Value (NPV), Internal Rate of Return (IRR),
Modified Internal Rate of Return (MIRR), and Profitability Index
(PI) of this project. B) If you were the manager of the firm, will
you accept or reject the project based on the...

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 =...

8. Modified internal rate of return (MIRR)
The IRR evaluation method assumes that cash flows from the
project are reinvested at the same rate equal to the IRR. However,
in reality the reinvested cash flows may not necessarily generate a
return equal to the IRR. Thus, the modified IRR approach makes a
more reasonable assumption other than the project's IRR.
Consider the following situation :
Cute Camel Woodcraft Company is analyzing a project that
requires an initial investment of $3,225,000....

17- Project L has a cost of ?$81,000. Its expected net cash
inflows are ?$90,000 per year for 8 years. What is the? project's
payback? period? If the cost of capital is 9?%, what are the?
project's net present value? (NPV) ? and what is the profitability
index? (PI)? What is the? project's internal rate of return?
(IRR)?

Year Project A Expected Cash Flows ($) 0 (1,250,000) 1 75,000 2
218,750 3 535,000 4 775,000 5 775,000 Year Project B Expected Cash
Flows ($) 0 (1,050,000) 1 650,000 2 500,000 3 226,250 4 137,500 5
62,500 Metrics Payback Period (in years) (A)3.54 (B)1.8 Discounted
payback period (in years) (A)4.58 (B)2.72 Net Present Value (NPV)
(A)$160,816 (B)$151,742 Internal Rate of Return (A)18.90% (B)23.84%
Profitability Index (A)1.13 (B)1.14 Modified Internal Rate of
Return (MIRR) (A)17.82% (B)18.15% a). Which of the...

Suppose your firm is considering investing in a project with the
accompanying cash flows, that the required rate of return on
projects of this risk class is 11 percent, and that the maximum
allowable payback and discounted payback statistics for your
company are 4 and 4.5 years, respectively. Time Year 0 Year 1 Year
2 Year 3 Year 4 Year 5 Cash Flow -$125,000 -$75,650 $75,000 $49,000
$115,000 $81,850 What is the Profitability Index? Would you accept
or reject the...

Your company is considering an
expansion into a new product line. The project cash flows are as
follows:
Year
Project A
0
-$60,000
1
44,000
2
20,000
3
14,000
The
required return for this project is 10%.
What is the NPV for the project?
What is the IRR for the project?
What...

6C5
Tall Trees, Inc. is using the modified internal rate of return
(MIRR) when evaluating projects. The company is able to reinvest
cash flows received from the project at an annual rate of 12.33
percent. What is the MIRR of a project if the initial costs are
$1,415,400 and the project life is estimated as 9 years? The
project will produce the same after-tax cash inflows of 570,900 per
year at the end of the year.
Round the answer to...

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