Question

Capital Budgeting: Homework 1. Waste Management has a WACC of 12 percent and it is considering a project with a cost of $52,125. The project’s expected net cash inflows are $12,000 per year for 8 years. What is the project’s payback period? What is the project’s net present value (NPV)? What is the profitability index? What is the project’s internal rate of return (IRR)? What is the project’s modified internal rate of return (MIRR)?

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

A В E 1 2 Cash Flow Cumulative CF Year ($52,125.00) $12,000.00 $12,000.00 $12,000.00 $12,000.00 $12,000.00 $12,000.00 $12,000.00 $12,000.00 ($52,125.00) ($40,125.00) ($28,125.00) ($16,125.00) ($4,125.00) $7,875 0 4 1 2 6 7 4 8 5 $19,875.00 $31,875.00 $43,875.00 9 6 10 7 11 8 WACC 12 12% 13 Payback period Net Present value Profitability Index Internal rate of return (IRR) Modified IRR 4.34 years 14 $7,486.68 15 1.14 16 16.00% 17 13.89% 18 19 20 21 LC OC

Cell reference -

А В с 1 2 Cash Flow Cumulative CF Year -52125 C3 4 1 12000 D3+C4 D4+C5 2 12000 6 3 12000 D5+C6 -D6+C7 7 4 12000 8 12000 D7+C8 6 12000 D8+C9 -D9+C10 10 12000 7 11 12000 D10+C11 12 WACC 0.12 13 B7+(-D7/(D8-D7)) NPV(C12,C4:C11) +C3 =NPV(C12,C4:C11)/-C3 Payback period Net Present value Profitability Index Internal rate of return (IRR)IRR(C3: C11) Modified IRR 14 years 15 16 17 |-MIRR(C3:C11,с12,С12) 18 19 20 21 C C LO st LC

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