Question

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 23 5 Project M Project N - $30,000 $10,000 $10,000 $10,000 $10,000 $10,000 - $90,000 $28,000 $28,000 $28,000 $28,000 $28,000 a. 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 b. Assuming the projects are independent, which one(s) would you recommend? -Select- c. If the projects are mutually exclusive, which would you recommend? -Select- d. Notice that the projects have the same cash flow timing pattern. Why is there a conflict between NPV and IRR? -Select-

Answer 1

rate positively ..both pic for formula and final excel solution is provided.

H5 M cumulative cash flow Present value Cumulative discounted cash flow Cash flow IPVIF @ 13% Year 0 =C6+1 =C7+1 =C8+1 =C9+1 =C10+1 Project M -30000 10000 10000 10000 10000 10000 Project N -90000 28000 28000 28000 28000 28000 Project M =D6 =F6+D7 =F7+D8 =F8+D9 =F9+D10 =F10+D11 Project N =E6 =G6+E7 =G7+E8 =G8+E9 =G9+E10 =G10+E11 =16/1.13 =17/1.13 =18/1.13 =19/1.13 =110/1.13 vi=iv Project M =D6*16 =D7*17 =D8+18 =D9-19 =D10*110 =D11*111 =SUM(J6:J11) vii=iiv Project N =E6*16 =E7*17 =E818 =E9-19 =E10*110 =E11*111 =SUM(K6:K11) viii Project M =J6 =L6+]7 =L7+J8 =L8+19 =L9+J10 =L10+J11 Project N =K6 =M6+K7 =M7+K8 =M8+K9 =M9+K10 =M10-K11 ans a) =J12 =K12 =IRR(D6:011) =IRR(E6:E11) =MIRR(D6:D11,13%,13%) =MIRR(E6:11,13%,13%) =IRR(D6:D11) =IRR(E6:E11) NPV M= NPV N= IRR M = IRR N= MIRR M= MIRR N= Payback M = Payback N= Discounted pa Discounted pa If projects are i If projects are This is becaus: 3+6000/28000 4+255.29/5427.6) 4+(6714.8/15197.28) =3+(-G9/E10) =C10+(-L10/J11) =C10+(-M10/K11) year year year year 24 ans b) 25 ans c) 26 and d)

				cumulative cash flow				Present value		Cumulative discounted cash flow
		Cash flow
		i	ii	iii	iv		v	vi=i*v	vii=ii*v	viii	ix
	Year	Project M	Project N	Project M	Project N		PVIF @ 13%	Project M	Project N	Project M	Project N
	0	(30,000)	(90,000)	(30,000)	(90,000)		1.0000	(30,000.00)	(90,000.00)	(30,000.00)	(90,000.00)
	1	10,000	28,000	(20,000)	(62,000)		0.8850	8,849.56	24,778.76	(21,150.44)	(65,221.24)
	2	10,000	28,000	(10,000)	(34,000)		0.7831	7,831.47	21,928.11	(13,318.98)	(43,293.13)
	3	10,000	28,000	-	(6,000)		0.6931	6,930.50	19,405.40	(6,388.47)	(23,887.73)
	4	10,000	28,000	10,000	22,000		0.6133	6,133.19	17,172.92	(255.29)	(6,714.80)
	5	10,000	28,000	20,000	50,000		0.5428	5,427.60	15,197.28	5,172.31	8,482.48
								5,172.31	8,482.48
ans a)
	NPV M =				5,172.31
	NPV N =				8,482.48
	IRR M =				19.86%	=IRR(D6:D11)
	IRR N =				16.80%	=IRR(E6:E11)
	MIRR M=				16.65%
	MIRR N=				15.05%
	Payback M =				3.00	year
	Payback N =		3+6000/28000		3.21	year
	Discounted payback M =		4+(255.29/5427.6)		4.05	year
	Discounted payback N =		4+(6714.8/15197.28)		4.44	year
ans b)	If projects are independed both projects should be selected as NPV is positive .
ans c)	If projects are mutually exclusive project N should be selected as NPV is higher for project N
and d)	This is because cash flow are not same and amount is different for project M and N. IRR reinvestment rate and NPV investment rate assumption is different.