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In-Class Investment Exercises - Solutions

In-Class Investment Exercises - Solutions - F509 ADVANCED...

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file: invest eval ex.xls F509 ADVANCED CAPITAL BUDGETING INVESTMENT EVAUATION EXERCISE Professor William L. Sartoris After-tax cash flows are given for 10 different investment projects for a firm with a WACC = 10%. a) View each investment as a stand alone project and calculate both the NPV and IRR and determine whether the project should be accepted. b) Try to think of the type of investment that might have the cash flow pattern for each project. c) You now have the additional information that projects 6 and 7 are mutually exclusive and you must choose between them. Which should be accepted? d) Projects 7 and 8 are mutually exclusive. Which should be accepted? e) Projects 9 and 10 represent different production processes for the same product, which has a long product life. Which is the better production process from the standpoint point of shareholder value? Project 1 Project 2 Project 3 Project 4 Project 5 Project 6 Project 7 Project 8 Project 9 Project 10 0 (1,000) (1,500) (3,000) (5,000) (500) (5,000) (10,000) (10,000) (10,000) (15,000) 1 80 (500) 900 10,000 500 1,000 6,000 (6,000) (5,000) 2 80 (100) 1,100 800 1,600
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