Question

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: Project M Project N - $15,000 $5,000 $5,000 $5,000 $5,000 $5,000 -$45,000 $14,000 $14,000 $14,000 $14,000 $14,000 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-

Answer 1

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projects (Autosaved) (Autosaved) (Autosaved) Microsoft Excel (Product Activation Failed) Page Layout Formulas File Home Insert Data Review View Add-Ins Z AutoSum Cut A A Wrap Text General Calibri 11 Copy Fill Merge & Center Conditional Format Formatting as Table Styles Insert Delete Format Paste 090 Cell Sort & Find & BIU % Format Painter Clear Filter Select Alignment Clipboard Font Number Styles Cells Editing fox OH690 OC OD OE OF OG OH OJ OK OL OM ON 00 671 672 PV FACTOR AT PROJECT M PROJECT N 13% 673 PROJECT M PROJECT N PV OF CFAT PV OF CFAT year A*C B*C 674 A В C 675 0 -15000 -45000 1 -15000 -45000 676 5000 0.8850 4424.78 1 14000 12389.38 5000 14000 0.7831 3915.73 677 2 10964.05 678 14000 3 5000 0.6931 3465.25 9702.70 5000 679 4 14000 0.6133 3066.59 8586.46 14000 0.5428 680 5 5000 2713.80 7598.64 NPV 681 2586.16 4241.24 682 19.86% 16.80% [IRR(OG675:0G680)] 683 IRR = 684 16.65% 15.51% =MIRR(OG675:OG680,13%,13%)] 685 MIRR 686 PAYBACK PERIOD = 687 3.00 YEARS 3.21 YEARS [15000/5000] [45000/14000] (INVESTMENT/ANNUAL CFAT [AS CASH FLOWS ARE EQUAL] 688 689 690 691 RATION PBP ARR EAC MACRS STI HPR GMAM NPV IRRnpvbeta invest, EAA MI-np-ir REPLACEMENT S RELEVANT BETA LEVERED REPLACEMENT BOND OPTION TO WAIT Rea (- + erences: SM219 120% W 12:21 ENG 04-11-2019

projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) Formulas File Home Insert Page Layout Data Review View Add-Ins Z AutoSum Cut AC Wrap Text Calibri 11 General ECopy Fill Merge & Center Conditional Format Formatting as Table Styles Paste 090 Cell Insert Delete Format Sort & Find & BIU % Format Painter Clear Filter Select Alignment Clipboard Font Number Styles Cells Editing fox O1724 OC OD OE OF OG OH OJ OK OL OM ON 00 706 707 PV FACTOR AT PROJECT M PROJECT N CCFAT CCFAT 13% 708 PROJECT M PROJECT N PV OF CFAT PV OF CFAT FOR M FOR N year A*C B*C 709 A B C 710 0 -15000 -45000 1 -15000 -45000 -15000 -45000 5000 4424.78 -32610.62 711 1 14000 0.8850 12389.38 -10575.22 5000 0.7831 712 2 14000 3915.73 10964.05 -6659.49 -21646.57 0.6931 3465.25 -11943.86 713 3 5000 14000 9702.70 -3194.24 5000 3066.59 -127.64 714 4 14000 0.6133 8586.46 -3357.40 5000 14000 2586.16 715 5 0.5428 2713.80 7598.64 4241.24 716 717 DISCOUNTED PAYBACK PERIOD 4 YEARS CCFAT4/CFAT5 (IGNORE NEGATIVE SIGN OF CCFAT4) 718 FOR M 4 YEARS(127.64/2713.80) 719 4.05 YEARS 720 721 4 YEARS CCFAT4/CFAT5 4 YEARS+(3357.40/7598.64) FOR N (IGNORE NEGATIVE SIGN OF CCFAT4) 722 723 724 4.44 YEARS 725 726 EAC MACRS STI HPR GMAM NPV RELEVANT IRRnpvbeta invest, EAA RATION PBP ARR MI-np-ir REPLACEMENT S BETA LEVERED REPLACEMENT BOND OPTION TO WAIT erences: NL296 (- (+ Rea 120% W 12:23 ENG 04-11-2019

projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) Review File Home Insert Page Layout Formulas Data View Add-Ins Cut Σ AutoSum - A A Wrap Text Calibri 11 General Copy Fill Merge & Center Insert Delete Format Paste +.0 .00 Conditional Format Cell Sort & Find & BIU % - .00 0 Format Painter Clear Filter Select Formatting as Table Styles Number Editing Clipboard Font Alignment Styles Cells fox OD705 OJ OD OK ON OC OE OF OG OH OI OL OM 00 686 687 688 689 690 691 Both projects would be accepted since both of their NPV's are positive ΒΟΤΗ Μ& Ν b 692 693 694 If the projects are mutually exclusive, the project with the highest positive NPV is chosen. Accept Project N 695 C 696 PROJECT N 697 The conflict between NPV and IRR occurs due to the difference in the size of the projects. 698 d 699 700 701 702 703 704 705 706 IRRnpvbeta STI NPV RELEVANT invest, EAA MI-np-ir RATION PBP ARR REPLACEMENT S HPR GMAM EAC MACRS BETA LEVERED REPLACEMENT BOND OPTION TO WAIT II Rea (- erences: E147 120% + WA 12:24 ENG 04-11-2019