Problem 11-1 NPV Project K costs $52,125, its expected net...

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NAME: PHAM NGUYEN PHUONG ANH ID : 1519752 COURSE : FIN 3331 C hapter 11 The basics of capital budgeting Problem 11-1 NPV Project K costs $52,125, its expected net cash inflows are $12,000 per year for 8 years, and its WACC is 12%. What is the project’s NPV?
Problem 11-2 IRR Refer to Problem 11-1. What is the project’s IRR?
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Problem 11-3 MIRR Refer to Problem 11-1. What is the project’s MIRR?
Problem 11-4 PAYBACK PERIOD Refer to Problem 11-1. What is the project’s payback?
Problem 11-5 DISCOUNTED PAYBACK Refer to Problem 11-1. What is the project’s discounted payback? 2
Year CF PV of CF Cumulative CF 0 -52125 -52125 -52125 1 12000 10714,29 -41410,71 2 12000 9566,33 -31844,39 3 12000 8541,36 -23303,02 4 12000 7626,22 -15676,81 5 12000 6809,12 -8867,69 6 12000 6079,57 -2788,11 7 12000 5428,19 2640,08 8 12000 4846,60 7486,68 The discounted payback = 6 + 2788.11/5428.19 = 6.5136 (years) Problem 11-6 NPV Your division is considering two projects with the following net cash flows (in millions): a. What are the projects’ NPVs assuming the WACC is 5%? 10%? 15%? b. What are the projects’ IRRs at each of these WACCs? c. If the WACC was 5% and A and B were mutually exclusive, which project would you choose? What if the WACC was 10%? 15%? (Hint: The crossover rate is 7.81%.)
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Project B: CF0 = -20, CF1 = 10, CF2 = 9, CF3 = 6, Case 1: I/YR = 0.05, NPV = $2.87 Case 2: I/YR = 0.1, NPV = $1.04 Case 3: I/YR = 0.15, NPV = -$0.55 b. We got all the results from Project A. , enter the cash flows into a financial calculator and solve for IRRA = 11.10%. The IRR is independent of the WACC, so it doesn’t change when the WACC changes. Similarly for the project B, enter the cash flows into a financial calculator and solve for IRRB = 13.18%. Again, the IRR is independent of the WACC, so it doesn’t change when the WACC changes.

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