Question

Capital Budgeting Methods

Project S has a cost of $9,000 and is expected to produce benefits (cash flows) of $2,700 per year for 5 years. Project L costs $26,000 and is expected to produce cash flows of $7,100 per year for 5 years.

Calculate the two projects' NPVs, assuming a cost of capital of 10%. Do not round intermediate calculations. Round your answers to the nearest cent.

Project S: $  

Project L: $  

Which project would be selected, assuming they are mutually exclusive?

Based on the NPV values, -Select-Project SProject LItem 3 would be selected.

Calculate the two projects' IRRs. Do not round intermediate calculations. Round your answers to two decimal places.

Project S:   %

Project L:   %

Which project would be selected, assuming they are mutually exclusive?

Based on the IRR values, -Select-Project SProject LItem 6 would be selected.

Calculate the two projects' MIRRs, assuming a cost of capital of 10%. Do not round intermediate calculations. Round your answers to two decimal places.

Project S:   %

Project L:   %

Which project would be selected, assuming they are mutually exclusive?

Based on the MIRR values, -Select-Project SProject LItem 9 would be selected.

Calculate the two projects' PIs, assuming a cost of capital of 10%. Do not round intermediate calculations. Round your answers to three decimal places.

Project S:

Project L:

Which project would be selected, assuming they are mutually exclusive?

Based on the PI values, -Select-Project SProject LItem 12 would be selected.

Which project should actually be selected?

-Select-Project SProject LItem 13 should actually be selected.

Answer 1

1.
=NPV(10%,{-9000;2700;2700;2700;2700;2700})*(1+10%)=1235.12427740281

2.
=NPV(10%,{-26000;7100;7100;7100;7100;7100})*(1+10%)=914.586062799977

3.
Project S

4.
=IRR({-9000;2700;2700;2700;2700;2700})=15.2382371166307%

5.
=IRR({-26000;7100;7100;7100;7100;7100})=11.3676173364153%

6.
Project S

7.
=MIRR({-9000;2700;2700;2700;2700;2700},10%,10%)=12.8659151556061%

8.
=MIRR({-26000;7100;7100;7100;7100;7100},10%,10%)=10.7632158945553%

9.
Project S

10.
=1+NPV(10%,{-9000;2700;2700;2700;2700;2700})*(1+10%)/9000=1.13723603082253

11.
=1+NPV(10%,{-26000;7100;7100;7100;7100;7100})*(1+10%)/26000=1.03517638703077

12.
Project S

13.
Project S