Question

7. Problem 11.07 Click here to read the eBook: Net Present Value (NPV) Click here to read the eBook: Internal Rate of Return (IRR) Click here to read the eBook: Modified Internal Rate of Return (MIRR) Click here to read the eBook: Payback Period 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: 1 2 3 4 5 Project M Project N -$3,000 -$9,000 $1,000 $2,800 $1,000 $2,800 $1,000 $2,800 $1,000 $2,800 $1,000 $2,800

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins - 2x % Cut Σ AutoSum : A Calibri 11 AA = = = pt Wrap Text General Ea Copy Fill Paste BI U D- DA SF Merge Merge & Center - Center $ % % , 4:0 .00 :.: Conditional Format Format Painter Cell Insert Delete Format Sort & Find & Formatting as Table Styles 2 Clear Filter Select Clipboard Font Alignment Number Styles Cells Editing OM733 for 4 oCODE OF OG OH OLOJOK OLOMON 00 731 732 PV FACTOR AT PROJECT M PROJECT N 733 year PROJECT M PROJECT N 13% PV OF CFAT PV OF CFAT 734 A c A*C B*c 735 -3000 -9000 1 -3000 -9000 736 1000 2800 0.8850 884.96 2477.88 737 2 1000 2800 0.7831 783.15 2192.81 738 1000 2800 0.6931 693.05 1940.54 739 1000 2800 0.6133 613.32 1717.29 740 1000 2800 0.5428 542.76 1519.73 741 NPV = 517.23 848.25 742 743 IRR = 19.86% 16.80% <«< ---- (=IRR(OH735:0H740)] 744 745 MIRR = 16.65% 15.05% <«< ---- (=MIRR(OH735:0H740,13%,13%)] 746 PAYBACK PERIOD = 3.00 YEARS 3.21 YEARS 748 [3000/1000] [9000/2800] (INVESTMENT/ANNUAL CF [AS CASH FLOWS ARE EQUAL] 749 750 751 I RRnpvbeta RATION PBP ARR invest, EAA MI-np-ir REPLACEMENT S HPR GMAM EAC MACRS NPV RELEVANT BETA LEVERED REPLACEMENT BOND OPTION TO WAIT STIL O ferences: P306 BOU 120% 1 + . . . * ENG 11:32 30-10-2019 747 H

A projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins - 2x % Cut Σ AutoSum : A Calibri 11 AA = = = pt Wrap Text General Ea Copy Fill Z Paste B I U B- SF A Merge Merge & Center - Center Format Painter $ -% % 4:0 .00 . Conditional Format Cell Insert Delete Format Sort & Find & Formatting as Table Styles 2 Clear Filter Select Clipboard Font Alignment Number Styles Cells Editing OH785 fic OC OD OE OF OG OH OLOJOK OLOMON 00 766 767 PV FACTOR AT PROJECT M PROJECT N CCFAT CCFAT 768 year PROJECT M PROJECT N 13% PV OF CFAT PV OF CFAT FORM FORN 769 c A*C B*c 770 -3000 -9000 1 -3000 -9000 -3000 -9000 771 1000 2800 0.8850 884.96 2477.88 -2115.04 -6522.12 772 2 1000 2800 0.7831 783.15 2192.81 -1331.90 -4329.31 773 1000 2800 0.6931 693.05 1940.54 -638.85 -2388.77 774 1000 2800 0.6133 613.32 1717.29 -25.53 -671.48 775 1000 2800 0.5428 542.76 1519.73 517.23 848.25 776 777 DISCOUNTED PAYBACK PERIOD 778 FORM 4 YEARS + CCFAT4/CFAT5 (IGNORE NEGATIVE SIGN OF CCFAT4) 779 4 YEARS + (25.53/542.76) 780 4.05 YEARS 781 782 FORN 4 YEARS + CCFAT4/CFAT5 (IGNORE NEGATIVE SIGN OF CCFAT4) 783 4 YEARS + (671.48/1519.73) 4.44 YEARS 785 786 I RRnpvbeta RATION PBP ARR invest, EAA MI-np-ir REPLACEMENT S HPR GMAM EAC MACRS NPV RELEVANT BETA LEVERED REPLACEMENT BOND OPTION TO WAIT STIL O Rea ferences: KS336 BOU 120% 1 + ODOB 9 * * 90 ENG 30-10-2019 784 H

projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) Data Review View Add-Ins File Home Insert Page Layout Formulas - 2x % Cut Calibri pt General 11 B- AA = = = A Wrap Text Merge Merge & Center - Center B I U SF $ -% % 4:0 .00 . Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Σ AutoSum : A Fill Sort & 2 Clear Filter Editing Find & Select Font Alignment Number Cells E Copy Paste Format Painter Clipboard OD749 OD 749 fax OE OF OG OH OL OJOK OLOM ON 750 751 752 753 Both projects would be accepted since both of their NPV's are positive BOTH M&N If the projects are mutually exclusive, the project with the highest positive NPV is chosen. Accept Project N PROJECT N 754 755 756 757 758 759 760 761 The conflict between NPV and IRR occurs due to the difference in the size of the projects. 762 763 764 765 zoo invest, EAA MI-np-ir REPLACEMENT S HPR GMAM EAC MACRS NPV RELEVANT BETA LEVERED REPLACEMENT I RRnpvbeta RATION PBP ARR ferences: KS336 Rea BOND OPTION TO WAIT STIL O DOI 140% - 50_+ 9 * * 90 ENG 30-10-2019 ODOB