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:

0

1

2

3

4

5

Project M	-$21,000	$7,000	$7,000	$7,000	$7,000	$7,000
Project N	-$63,000	$19,600	$19,600	$19,600	$19,600	$19,600

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

Answer 1

Solution:-

To Calculate NPV of the Project-

А B D E с Net Present Value of Project M 1 N O N 3 5 3 Year Cash flow Discounting Factor @14% Present Value 4 -21000 1.00 -21000 5 1 7000 0.877 6140.35 6 7000 0.769 5386.27 7 7000 0.675 4724.80 8 4 7000 0.592 4144.56 9 7000 0.519 3635.58 10 11 Net Present Value 3031.57 12 13 Net Present Value of Project N 14 15 Year Cash flow Discounting Factor @14% Present Value 16 0 -63000 1.00 -63000 17 1 19600 0.877 17192.98 18 2 19600 0.769 15081.56 19 3 19600 0.675 13229.44 20 4 19600 0.592 11604.77 21 5 19600 0.519 10179.63 22 23 Net Present Value 4288.39 24

A B D 1 Net Present Value of Project M (Formula Sheet) 2 3 Year 40 Cash flow -21000 7000 5 1 6 2 7000 Discounting Factor @14% =1 =C4*100/114 =C5*100/114 =C6*100/114 =C7*100/114 =C8*100/114 Present Value =B4*C4 =B5*C5 =B6*C6 =B7*C7 =B8C8 =B9*C9 7 3 7000 8 4 7000 7000 95 10 11 Net Present Value I-SUM(D4:09) 12 13 Net Present Value of Project N (Formula Sheet) 14 15 Year Discounting Factor @14% 16 0 Cash flow -63000 19600 17 1 Present Value =B16*016 =B17*C17 =B18*C18 =B19*C19 =B20*C20 18 2 19600 19 3 =C16*100/114 =C17*100/114 =C18*100/114 =C19*100/114 =C20*100/114 19600 20 4 19600 21 5 19600 =B21*C21 22 Net Present Value =SUM(D16:D21) 23 24

To Calculate IRR of the Project-

A С D E B IRR of Project NM 1 2 3 Year 4 0 1 5 6 Cash flow -21000 7000 7000 7000 7000 2 Formula IRR(B4:39) 7 3 00 4 9 5 7000 10 11 IRR 19.86% 12 13 IRR of Project N 14 15 Year 16 Cash flow -63000 19600 O 17 1 18 19600 N 19 B 19600 Formula IRR(B16:321) 20 4 19600 19600 21 5 22 23 IRR 16.80% 24

To Calculate MIRR of project-

MIRR = $\frac{Fv of Cash Flows}{Present Value of Cash Outflow}^{\frac{1}{n}} - 1$

Project M-

Future Value
Year	Deposit Amount	Compounding Factor @14%	Future Value
1	7000	1.689	11822.72
2	7000	1.482	10370.81
3	7000	1.300	9097.20
4	7000	1.140	7980.00
5	7000	1.000	7000.00
		Future Value	46270.73

MIRR =

46.270.73 21,000 - 1

MIRR = 17.12%

Project N-

Future Value
Year	Deposit Amount	Compounding Factor @14%	Future Value
1	19600	1.689	33103.62
2	19600	1.482	29038.26
3	19600	1.300	25472.16
4	19600	1.140	22344.00
5	19600	1.000	19600.00
		Future Value	129558.04

MIRR = $\frac{129,558.04}{63,000}^{\frac{1}{5}} - 1$

MIRR = 15.51%

To Calculate Payback period of project-

Payback Period = $\frac{Initial Investment}{Annual Cash Flows}$

Project M-

Payback Period = $\frac{21,000}{7,000}$

Payback Period = 3 years

Project N-

Payback Period = $\frac{63,000}{19,600}$

Payback Period = 3.21 years

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