Problems 117 capital budgeting criteria a firm with

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Problems11.7/ CAPITAL BUDGETING CRITERIA A firm with 14% WACC is evaluating twoprojects for this year’s capital budget. After-tax cash flows, including depreciation, areas follows:Project AProject Ba.Calculate NPV, IRR, MIRR, payback, and discounted payback for each project.b.Assuming the projects are independent, which one(s) would you recommend?c.If the projects are mutually exclusive, which would you recommend?d.Notice that the projects have the same cash flow timing pattern. Why is there aconflict between NPV and IRR?
Using Excel, MIRR = 17.12%PeriodCash flowCumulative (A)0-$6,000-$6,0001$2,000-$4,0002$2,000-$2,0003$2,000$04$2,000$2,0005$2,000$4,000PaybackPeriodCash flowDiscounted CashflowCumulativediscounted CF0-$6,000-$6,000-$6,0001$2,000$1,754-$4,2462$2,000$1,539-$2,7073$2,000$1,350-$1,3574$2,000$1,184-$1735$2,000$1,039$866Discounted paybackProject BIRR = 16.80%Using Excel, MIRR = 15.51%PeriodCash flowCumulative0-$18,000-$18,0001$5,600-$12,400
2$5,600-$6,8003$5,600-$1,2004$5,600$4,4005$5,600$10,000PaybackPeriodCash FlowDiscounted CashFlowCumulativeDiscounted CF0-$18,000-$18,000-$18,0001$5,600$4,912-$13,0882$5,600$4,309-$8,7793$5,600$3,780-$4,9994$5,600$3,316-$1,6835$5,600$2,908$1,225Discounted paybackb.Assuming the project are independent, I would recommend 2 projects.c.If the projects are mutually exclusive, I would recommend project B becauseNPVA<NPVB.d.The projects have the same cash flow timing pattern. There is a conflict between NPVand IRR because NPV = IRR = 0.

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Term
Spring
Professor
Nguyen

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