Capital Budgeting Model.doc

Capital Budgeting Model.doc - Build a Model Gardial...

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Build a Model Expected net cash flows Time Project A Project B 0 ($375) ($575) 1 ($300) $190 2 ($200) $190 3 ($100) $190 4 $600 $190 5 $600 $190 6 $926 $190 7 ($200) $0 @ a 12% cost of capital @ a 18% cost of capital Discount rate = 12% Discount rate 18% NPV A = $226.96 NPV A = $18.24 NPV B = $206.17 NPV B = $89.54 b. Construct NPV profiles for Projects A and B. Project A Project B 0% $951.00 $565.00 2% $790.31 $489.27 4% $648.61 $421.01 6% $523.41 $359.29 8% $412.58 $303.35 10% $314.28 $252.50 12% $226.96 $206.17 14% $149.27 $163.85 16% $80.03 $125.10 18% $18.24 $89.54 20% ($36.98) $56.85 22% ($86.39) $26.71 24% ($130.65) ($1.11) Gardial Fisheries is considering two mutually exclusive investments. The projects' expected net cash flows are as follows: a. If you were told that each project's discount rate was 12 percent, which project should be selected? If the discount rate was 18 percent, what would be the proper choice? With a 12% discount rate, project A should be selected.
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This note was uploaded on 09/22/2008 for the course FIN 610 taught by Professor Khawaja during the Spring '08 term at University of Maryland Baltimore.

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Capital Budgeting Model.doc - Build a Model Gardial...

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