Chap 6_capital bugeting problems

# Chap 6_capital bugeting problems - Chapters 5-7 Problems...

This preview shows pages 1–5. Sign up to view the full content.

Click to edit Master subtitle style M G M T 5 Chapters 5-7 Problems

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

View Full Document
M G M T 5 Modified 6.13 Suppose the following two mutually independent investment opportunities are available to Greenplain Inc. Appropriate Discount Rate is 10%. Compute the NPV, IRR, Modified IRR, and the Profitability Index of these projects. Which project should Greenplain choose? Year Alpha Beta 0 -500 -2000 1 300 300 2 700 1800 3 600 1700
M G M T 5 CF0=-500, CF01=300, CF02=700, CF03=600 I=10%, NPV=?(802.03), IRR=77.21 PV of future CF (CF0=0, CF01=300, CF02=700, CF03=600, I=10%, NPV=? (1302.03). PI=1302.03/500. Computing MIRR Reinvest all interim cash-flows till project end. PV=300, N=2, I=10%, PMT=0, FV=? (363) PV=700, N=1, I=10%, PMT=0, FV=? (770). Total Value at Year 3=363+770+600=1733 Invest 500 today, get 1733 in 3 years. What is our return? PV=-500, N=3, PMT=0, FV=1733, I=? (51.34) CF0=-500, CF01=0, F01=2, CF02=1733, IRR=? (51.34) In a similar way, for project 2 NPV=1037.57, IRR=31.98, PI=1.5, MIRR=26.44 (since CF are reinvested at a lower rate than IRR, MIRR is < IRR)

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

View Full Document
M G M T 5 Problem 6.18 Consider the following after-tax cash-flows of two mutually exclusive projects for the China Daily News a. Based on payback period rule, which project should be chosen? Which project has the greater IRR? b. Based on the incremental IRR rule, which project should be chosen? Appropriate discount rate is 12% Year Sunday Edition Saturday Edition 0 -1200 -2100 1 600 1000 2 550 900 3 450 800
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern