ch 11 (CapBud) - Model for Chapter 11 Basics of Capital...

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Model for Chapter 11, Basics of Capital Budgeting Table 11-1. Data on Projects S and L WACC for both projects: 10% Initial Cost: Total Years: 0 1 2 3 4 Inflows Project S: -$1,000 $500 $400 $300 $100 $1,300 Project L: -$1,000 $100 $300 $400 $675 $1,475 (Text Section 11-2) Figure 11-1. Finding the NPV for Projects S and L Project S 0 r = 10% 1 2 3 4 -1,000.00 500 400 300 100 454.55 330.58 225.39 68.30 $78.82 Sum = NPV for Project S $100.40 =NPV(C4,C8:F8)+B8. See the Tutorial for more on the NPV fun (Text Section 11-3) Figure 11-2. Finding the IRR for Project S IRR=14.489% 0 1 2 3 4 Project S -1,000.00 500 400 300 100 436.72 305.16 199.91 58.20 $0.00 = NPV at a discount rate of 14.489%. Since the NPV is zero, 14.489% must be the IRR. IRR = 14.489% =IRR(B26:F26) See the Tutorial for more on the IRR fun On tab #1 we go through the main calculations done in the chapter. We recommend that you see our Exc Tutorial if you don't understand some of the Excel functions. After-Tax, End of Year Net Cash Inflows, CF t : NPV S = NPV L =
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(Text Section 11-4) Figure 11-3. Graph for Multiple IRRs: Project M WACC = 10% Disc. Rate NPV Project M -$0.7736 0 1 10% -$0.7736 -$1.60 $10.00 25% $0.0000 = IRR #1 110% $0.8943 400% $0.0000 = IRR #2 500% -$0.2111 Text section 11-6 Figure 11-4. Finding the MIRR for Projects S and L WACC = 10% Project S 0 r = 10% 1 2 3 4 -$1,000.00 $500.00 $400.00 $300.00 $100.00 $330.00 $484.00 $665.50 -$1,000.00 Terminal Value (TV) = $1,579.50 Err:502 Excel, Rate function: =RATE(F69,0,B70,F74) Rate = MIRR Err:502 Excel, MIRR function: =MIRR(B70:F70,F68,F68) 12.11% Find the discount rate that forces the present value of the terminal value to equal the project's cost. That discount rate is defined as the MIRR. $1,000 =TV/(1+MIRR) N = $1,579.50/(1+MIRR) 4 . We can find the MIRR with a calculator or Excel.
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