Capital Budgeting Solutions10

# Capital Budgeting Solutions10 - CFj CFj CFj CFj I/YR = = =...

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Old Exam Questions - Capital Budgeting - Solutions Page 91 of 96 Pages CFj = \$ 0.00 CFj = \$ 0.00 CFj = \$ 0.00 CFj = \$32,837.75 I/YR = 12 Solve for MIRR = 17.1358% Alternatively, N = 5; PV = -14,635.98; FV = 34,328.08; Solve for I/YR = 17.1358% = MIRR Difference = 29.2394% - 17.1358% = 12.1036% 86. You are given the following decision tree representing the cash flows for a project (conditional probabilities are in parentheses). Assuming that the correct risk-adjusted discount rate (WACC) to use is 12 percent, determine the internal rate of return for this project. Year 0 Year 1 Year 2 Year 3 \$300 (.5) \$400 (.5) \$500 (.5) \$500 (.5) \$500 (.5) \$600 (.5) \$700 (.5) -\$900 \$500 (.5) \$600 (.5) \$700 (.5) \$700 (.5) \$700 (.5) \$800 (.5) \$900 (.5) A. 42.43% B. 43.53% * C. 44.63% D. 45.73% E. 46.83% The decision tree can be simplified to: Year 0 Year 1 Year 2 Year 3 \$500 \$500 \$500 (.5)

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Old Exam Questions - Capital Budgeting - Solutions Page 92 of 96 Pages -\$900 \$700 \$700 \$700 (.5) which can be further simplified down to: Year 0 Year 1 Year 2 Year 3 -\$900 \$600 \$600 \$600 and the IRR can be calculated as: CFj = -\$900 CFj = \$600 CFj = \$600 CFj = \$600 I/YR = 12 Solve for NPV = \$541.10 (not needed for this problem) Solve for IRR = 44.63% 87. You are given the following decision tree representing the cash flows for a project (conditional probabilities are in parentheses). Assuming that the correct risk-adjusted discount rate (WACC) to use is 12 percent, you can calculate that the net present
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Capital Budgeting Solutions10 - CFj CFj CFj CFj I/YR = = =...

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