H14 NPV IRR Capital Rationing.xlsx

# H14 NPV IRR Capital Rationing.xlsx - NPV and IRR...

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NPV and IRR 0 1 2 3 4 5 CF(A) -100 50 50 20 CF(B) -100 15 20 25 50 50 CF(C) -100 90 30 12 Cumulative CF(B) -100 -85 -65 -40 10 60 IRR NPV Considers all cash flows x Recognizes time value of money x Easy to communicate Computable (existence) ? Unambiguous (uniqueness) ? Consistent with value maximization Implementation cost Payback Period Consider a project (A) which requires an initial investment of \$100 and has expected cash flows of \$50, a) Calculate the project's NPV using a discount rate of 10%. b) Calculate the project's IRR. c) Draw the project's NPV profile.

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WACC NPV(k=WACC) IRR NPV(k=0%) 10% Project cash flows 11% Project financing 12% Project wacc \$50 and \$20 in years 1, 2, and 3, respectively.
(incremental cash flows)

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Project NPV INV Raw Material ACC IND ACC NPV ACC INV ACC Raw Mat A \$ 72,658 \$ 628,200 7,200 B \$ 36,418 \$ 352,100 4,800 C \$ 212,150 \$ 1,245,600 14,400 D \$ 70,925 \$ 814,300 9,600 E \$ 11,400 \$ 124,500 1,200 F \$ 56,842 \$ 985,000 12,000 G \$ 93,600 \$ 2,356,400 28,800 H \$ 65,350 \$ 226,900 2,400 I \$ 48,842 \$ 1,650,000 20,400 J \$ 39,815 \$ 714,650 8,400 SUM \$ 708,000 \$ 9,097,650 109,200 LIMIT \$ 5,000,000 100,000 Project NPV INV Raw Material ACC IND ACC NPV ACC INV ACC Raw Mat A \$ 72,658 \$ 628,200 7,200 B \$ 36,418 \$ 352,100 4,800 C \$ 212,150 \$ 1,245,600 14,400 D \$ 70,925 \$ 814,300 9,600 E \$ 11,400 \$ 124,500 1,200 F \$ 56,842 \$ 985,000 12,000 G \$ 93,600 \$ 2,356,400 28,800 H \$ 65,350 \$ 226,900 2,400 I \$

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