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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