NPV is sum of present value of all cash flows.
Present value of cash flows = cash flows * PVF
PVF formula = 1/(1+Discount rate)^period
For year 1, PVF = 1/(1+6%)^1= 0.9433962264
For year 2, PVF = 1/(1+6%)^2= 0.88999644
and so on.
Project payback period is time period required to recover the cost
of an investment. In other words, how long it will take to pay the
investment back.
For payback We will calculate Cumulative present value of cash
flow
Year cash inflows PVF@6% PV of
cash flows Cumulative cash inflows
year 0 -500 1 -500
-500
Year 1 300 0.9433962264
283.0188679 -200
Year 2 200 0.88999644
177.999288 0
Year 3 150 0.839619283
125.9428925 150
NPV=
86.96104837
Payback year = year before positive cumulative cash flow +
(cumulative cash flow to make cum. cash flow to 0/Cash flow of
first positive cumulative CF)
2 +0/0
Payback period 2 years
IRR = 16.46%
IRR function = irr(CF0:CF13)
NPV is positive and IRR is greater than 6%, so accept the project
Problem 3: A potential CB project has the following cash flows: CFO = -$500, CF1 =...
You work as a financial analyst for the CFO of a Fortune 500 company. You are have been asked to consider the following cash flows (in millions (m)) from two mutually exclusive capital budgeting projects. If the firm's WACC is 14%, find the NPV and IRR and select which one(s) you would choose. Project 1: CFO -6m CF1 -2m CF2 = 2m CF3 = 2m CF4-2m CF5 = 2m Project 2: CFO = -18m CF1-5.6m CF2 = 5.6m CF3-5.6m CF4-5.6m...
Ellmann Systems is considering a project that has the following cash flow and WACC data. The WACC is 7%. The CF0 = -$1,000, CF1 = $331, CF2 = $473, and CF3 = $597. What is the project's NPV? Computer Consultants Inc. is considering a project that has the following cash flow and WACC data. The WACC is 10.2%. The CF0 = -$1,000, CF1 = $450, CF2 = $450, and CF3 = $450. What is the project's MIRR? Garner Inc. is...
You work as a financial analyst for the CFO of a big company, you have been asked to consider the following cash flows (Millions) from two mutually exclisive capital budgeting projects. If the firm's WACC is 14%, find the NVP and IRR and select which one you would choose: Project 1: CF0= -6M CF1= 2M . CF2=2m CF3=2M . CF4= 2m Project 2: CF0= -18M CF1= 5.6M CF2= 5.6M CF3= 5.6M CF4= 5.6M CF5= 5.6M Answer Choices: A) Project 1:NVP=...
a. Find present value of the following cash flows at 3% rate: CF0 = -1000; CF1 = 300; CF2 = 560; CF3 = -90; CF4 = 250. b. What is the future value of these cash flows?
1. Consider two projects with the following (after-tax) cash flows. Project A: CF1 50, CF2 55, CF3 85. Project B: CF1 140. Both projects require an initial investment of 100. Assume the cost of capital for both projects is r 5%. (a) Compute NPV and IRR for project A. (b) Compute NPV and IRR for project B. (c) Assume you replicate project B twice, i.e. reinvest 100 in t 1 and t2. Compute the NPV and IRR of the replicated...
No need for Explanation The CFO of a major corporation is trying to decide on what project to pursue using different investment criteria: Net Present Value (NPV), Payback Period, Discounted Payback Period, Internal Rate of Return (IRR), and the Profitability Index (PI). The CFO has four projects to choose between: Project W (which is a strip mine - see problem 6), Project X, Project Y, and Project Z. Additional information about each project is summarized below. You can use the...
Geraldine Consultants, Inc. 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 WACC is 10%. What are the project's payback, internal rate of return, and net present value? Select one: a. Payback = 2.6, IRR = 21.22%, NPV = $300. b. Payback = 2.4, IRR = 21.22%, NPV = $260. c. Payback = 2.6, IRR = 24.12%, NPV = $300. d. Payback = 2.4,...
Consider a project with the following cash flows: CF0=$100 million, CF1=$-60 million, CF2=$-60 million. Should you accept or reject the project if the discount rate is 12%? Group of answer choices Flip a coin Reject Accept
NO COMPUTER SOFTWARE IS ALLOWED TO ANSWER THIS QUESTION Consider Table 2 3. Table 2 CF3 CF4 CF2 CF1 CFO Project 75 40 60 110 110 (200) (200) (200) 75 40 60 75 40 60 110 0.80 0.24 2.00 3.60 Interest Tax Shield Additional information for all projects 15% Cost (required return) on unlevered equity (%) Cost of debt capital (%) Corporation tax rate (%) Financing of each project: Debt 10% 20% 100 100 Equit alculate the value of project...
Please show your steps! Question 1 a) What is the NPV, IRR, and payback period of a project with the following cash flows if WACC is 20%? Time: 0 -$350,000 1 $100,000 2 $100,000 3 $100,000 5 $50,000 $50,000 NPV= IRRE Payback period= b) Should you accept or reject the project according to NPV and IRR?