Chap 6_capital bugeting problems

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

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