Chap 6_capital bugeting problems

Chap 6_capital bugeting problems - Click to edit Master...

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Unformatted text preview: Click to edit Master subtitle style M G M T 5 M G M T 5 Chapters 5-7 Problems M G M T 5 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-500-2000 1 300 300 2 700 1800 3 600 1700 M G M T 5 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) M G M T 5 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?...
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This note was uploaded on 09/30/2011 for the course SCHOOL OF 101 taught by Professor Abc during the Fall '11 term at Binghamton.

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Chap 6_capital bugeting problems - Click to edit Master...

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