Question

A firm with a 14% WACC is evaluating two projects for this year's capital budget. After-tax cash flows, including depreciation, are as follows:

Project M	-$24,000	$8,000	$8,000	$8,000	$8,000	$8,000
Project N	-$72,000	$22,400	$22,400	$22,400	$22,400	$22,400

1. Calculate NPV for each project. Do not round intermediate calculations. Round your answers to the nearest cent.

   Project M:    $  

   Project N:    $  

   Calculate IRR for each project. Do not round intermediate calculations. Round your answers to two decimal places.

   Project M:       %

   Project N:       %

   Calculate MIRR for each project. Do not round intermediate calculations. Round your answers to two decimal places.

   Project M:       %

   Project N:       %

   Calculate payback for each project. Do not round intermediate calculations. Round your answers to two decimal places.

   Project M:      years

   Project N:      years

   Calculate discounted payback for each project. Do not round intermediate calculations. Round your answers to two decimal places.

   Project M:      years

   Project N:      years

2. Assuming the projects are independent, which one(s) would you recommend?

3. If the projects are mutually exclusive, which would you recommend?

   Notice that the projects have the same cash flow timing pattern. Why is there a conflict between NPV and IRR?

Answer 1

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

- 2x Σ AutoSum : A Fill 2 Sort & m Find & 2 Clear Filter Editing Select CS M 143 projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins % Cut Calibri -11AA = = Wrap Text General Ea Copy Paste BI U DA SEB Merge & Center $ % 8.8 Conditional Format Format Painter Cell Insert Delete Format Formatting as Table Styles Clipboard Font Alignment Number Styles Cells CS149 for C CK CL C M CN CO CP CQ CR 139 140 PROJECT PV FACTOR AT 14% PV OF CFAT (M) PV OF CFAT (N) 141 YEAR N Р M*P N*P 142 -24000 -72000 1 -24000.00 -72000.00 8000 22400 0.8772 7017.54 19649.12 144 8000 22400 0.7695 6155.74 17236.07 145 8000 22400 0.6750 5399.77 15119.36 146 8000 22400 0.5921 4736.64 13262.60 147 8000 22400 0.5194 4154.95 11633.86 148 NPV = 3464.65 4901.01 149 PROJECT M PROJECT N 151 NPV 3464.65 4901.01 152 IRR 19.86% 16.80% <--------------- EXCEL = IRR(CN142:CN147) MIRR 17.12% 15.51% <-------EXCEL = MIRR(CM142:CM147,14%,14%) PAYBACK PERIOD [INVESTMENT/ANNUAL CF] [24000/8000] [72000/22400] 156 ON min 150 153 3.21 154 155 157 158 159 invest, EAA MI-np-ir REPLACEMENT S HPR GMAM EAC MACRS NPV RELEVANT BETA LEVERED IRRnpvbeta RATION PBP ARR ferences: P306 Rea REPLACEMENT BOND OPTION TO WAITSTEIN III BOU 120% ...B 199 * 10 ENG 30-11-2019

P Ont in 168 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 B I U B- A Merge & Center - Format Painter $ -% 8. Sort & Find & Formatting as Table Styles 2 Clear Filter Select Clipboard Font Alignment Number Styles Cells Editing CT176 CJ CK CL C M CN CO CP CQ CR CS CT 162 PROJECT PV FACTOR AT 14% PV OF CFAT (M) PV OF CFAT (N) DISCOUNTED CFAT 163 YEAR MN M*P N*P FORM FORN 164 -24000 -72000 1 -24000.00 -72000.00 -24000.00 -72000.00 165 8000 22400 0.8772 7017.54 19649.12 -16982.46 -52350.88 166 8000 22400 0.7695 6155.74 17236.07 -10826.72 -35114.80 167 8000 22400 0.6750 5399.77 15119.36 -5426.94 -19995.44 8000 22400 0.5921 4736.64 13262.60 -690.30 -6732.84 169 8000 22400 0.5194 4154.95 11633.86 3464.65 4901.01 DISCOUNTED PAYBACK PERIOD 171 172 FORM 4+CCAFT4/CFAT 5 = 4+ (690.30/4154.95) = 4.17 (IGNORE NEGATIVE SIG OF CCFAT) 173 174 FORN 4+CCAFT4/CFAT 5 = 4+ (6732.84/11633.86) = 4.58 (IGNORE NEGATIVE SIG OF CCFAT) 175 176 IF PROJECTS ARE INDEPENDENT 177 Both projects would be accepted since both of their NPV's are positive. 178 IF PROJECTS ARE MUTUALLY EXCLUSIVE -If the projects are mutually exclusive, the project with the highest positive NPV is chosen. Accept Project N 180 181 The conflict between NPV and IRR occurs due to the difference in the size of the projects I RRnpvbeta RATION PBP ARR invest, EAA MI-np-ir REPLACEMENT S HPR GMAM EAC MACRS NPV RELEVANT BETA LEVERED REPLACEMENT BOND OPTION TO WAITSTEIN III Rea ferences: P306 BOU 120% D. RO 9 * 10 ENG 30-11-2019 170 179 H