Chapter 11-Capital Budgeting Examples

Chapter 11-Capital Budgeting Examples - Example 1 - Capital...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
Example 1 - Capital Budgeting Your company is considering two mutually exclusive projects. The projects have the following cash flows: Project A Project B Year Cash Flows Cash Flows 0 - $1,200 - $1,000 1 +$ 200 +$ 800 2 +$ 300 +$ 400 3 +$ 600 +$ 300 4 +$ 900 +$ 100
Background image of page 1

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

View Full DocumentRight Arrow Icon
Example 1 - Capital Budgeting If the cost of capital for both of these projects is 10%, then what is the IRR for the project that has the highest NPV?
Background image of page 2
Example 1 - Capital Budgeting Project A CFj = -$1,200 CFj = $ 200 CFj = $ 300 CFj = $ 600 CFj = $ 900 I/YR = 10 Solve for NPV = $295.25 Solve for IRR = 18.48%
Background image of page 3

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

View Full DocumentRight Arrow Icon
Example 1 - Capital Budgeting Project B CFj = -$1,000 CFj = $ 800 CFj = $ 400 CFj = $ 300 CFj = $ 100 I/YR = 10 Solve for NPV = $351.55 Solve for IRR = 31.92%
Background image of page 4
Example 2 - Capital Budgeting Two projects being considered by a firm have the following projected cash flows: Project A Project B Year Cash Flows Cash Flows 0 ($150,000) ($150,000) 1 $ 75,000 0 2 $ 75,000 0 3 $ 75,000 $251,867
Background image of page 5

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

View Full DocumentRight Arrow Icon
Example 2 - Capital Budgeting Based on this information you should be
Background image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 01/11/2012 for the course FIN 3403 taught by Professor Tapley during the Fall '06 term at University of Florida.

Page1 / 11

Chapter 11-Capital Budgeting Examples - Example 1 - Capital...

This preview shows document pages 1 - 7. Sign up to view the full document.

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