Chapter 11-Capital Budgeting Examples

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

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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

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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?
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%

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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%
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

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Example 2 - Capital Budgeting Based on this information you should be
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## 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.

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

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