Question

Q Search 11: End-of-Chapter Problems - The Basics of Capital Budgeting CAPITAL BUDGETING CRITERIA 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: 012 3 4 5 Project M Project N -$24,000 $8,000 $8,000 $8,000 $8,000 $8,000 -$72,000 $22,400 $22,400 $22,400 $22,400 $22,400 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 If the nmients are mutually exclusive, which would you recommend?

Answer 1

Year	M	N	DCF M	DCF N
0	-24,000	-72,000	-24000	-72000
1	8,000	22,400	7017.544	19649.12
2	8,000	22,400	6155.74	17236.07
3	8,000	22,400	5399.772	15119.36
4	8,000	22,400	4736.642	13262.6
5	8,000	22,400	4154.949	11633.86
NPV	$3,464.65	$4,901.01
IRR	19.86%	16.80%
MIRR	17.12%	15.51%
Payback	3.00	3.21
Disc. PBP	4.17	4.58

NPV, IRR and MIRR can be calculated using the same function in excel with 14% discount rate.

Payback Period is the no. of years it takes to recover the investment. Payback Period = Investment / Annual CF

Discounted Payback Period is similar to payback period but here we used discounted cash flow (DCF)

DCF = CF / (1 + WACC)^n