# Section 102 solutions to self test projects ss and ll

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SECTION 10.2 SOLUTIONS TO SELF-TEST Projects SS and LL have the following cash flows: WACC = r = 10% 0 1 2 3 SS -700 500 300 100 LL -700 100 300 600 If a 10% cost of capital is appropriate for both of them, what are their NPVs?
4. What project or set of projects would be in your capital budget if SS and LL were (a) independent or (b) mutually exclusive?
SECTION 10.3 SOLUTIONS TO SELF-TEST The cash flows for Projects SS and LL are as follows: WACC = r = 10% 0 1 2 3 SS -700 500 300 100 LL -700 100 300 600 What are the two projects’ IRRs, and which one would the IRR method select if the firm has a 10% cost of capital and the projects are (a) independent or (b) mutually exclusive?
If the two projects are independent, accept both. If the two projects are mutually exclusive, accept Project LL.
SECTION 10.4 SOLUTIONS TO SELF-TEST QUESTIONS Project MM has the following cash flows: r = 10% 0 1 2 3 -\$1,000 \$2,000 \$2,000 -\$3,350 Calculate MM’s NPV at discount rates of 0%, 10%, 12.2258%, 25%, 122.1470%, and 150%. What are MM's IRRs? If the cost of capital were 10%, should the project be accepted or rejected?
SECTION 10.6 SOLUTIONS TO SELF-TEST Projects A and B have the following cash flows: 0 1 2 A -\$1,000 \$1,150 \$100 B -\$1,000 \$100 \$1,300 Their cost of capital is 10%. What are the projects’ IRRs, MIRRs, and NPVs?
We used Excel functions to calculate these values. See the Tutorial for instructions on the NPV, IRR, and MIRR functions.
SECTION 10.8 SOLUTIONS TO SELF-TEST A project has the following expected cash flows: CF 0 = -\$500, CF 1 = \$200, CF 2 = \$200, and CF 3 = \$400. If the project's cost of capital is 9%, what is the PI?
PI = 1.321391
SECTION 10.9 SOLUTIONS TO SELF-TEST Project P has a cost of \$1,000 and cash flows of \$300 per year for 3 years plus another \$1,000 in Year 4. The project’s cost of capital is 15%. What are P’s regular and discounted paybacks?
The payback rule of 3 years leads to a reject decision.
NPV = \$256.72 IRR = 24.78%
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