Capital Budgeting Solutions10

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

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
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)
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
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
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 6

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

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online