Question

# A project that will provde annual cash flows of $2,650 for nine years costs $10,900

today.

**a.**At a required return of 8 percent, what is the NPV of the project? = 5654.25

**b.**At a required return of 24 percent, what is the NPV of the project? = -1451.42

**c.**At what discount rate would you be indifferent between accepting the project and rejecting it?

Piercy, LLC, has identified the following two mutually exclusive projects: YearCash Flow (A)Cash Flow (B)0 −$53,000 −$53,000 1 29,000 16,700 2 23,000 20,700 3 17,500 25,000 4 12,600 25,700

**a-1.**What is the IRR for each of these projects?

**a-2.**If you apply the IRR decision rule, which project should the company accept? Project A

**b-1.**Assume the required return is 13 percent. What is the NPV for each of these projects?

**b-2.**Which project will you choose of you apply the NPV decision rule? Procject B

**c-1.**Over what range of discount rates would you choose Project A?

**c-2.**Over what range of discount rates would you choose Project B?

**d.**At what discount rate would you be indifferent between these two projects?

Consider the following cash flows: YearCash Flow

0−$29,600

1-14,100

2-14,800

3-11,200

**a.**What is the profitability index for the cash flows if the relevant discount rate is 11 percent?

**b.**What is the profitability index if the discount rate is 16 percent?

**c.**What is the profitability index if the discount rate is 23 percent?

Consider the following two mutually exclusive projects: The required return on these investments is 10 percent.

Cash Flow A

0,-420000

1,46500

2,59500

3,76500

4,535000

Cash flow B

0,-37500

1,19900

2,13800

3,16100

4,12900

**a.**What is the payback period for each project?

**b.**What is the NPV for each project?

**c.**What is the IRR for each project?

**d.**What is the profitability index for each project?

**e.**Based on your answers in (a) through (d), which project will you finally choose?

Doak Corp. is evaluating a project with the following cash flows:

Year Cash Flow

0 -$15,300

1 6,400

2 7,600

3 7,200

4 6,000

5 -3,400

The company uses an interest rate of 9 percent on all of its projects. Calculate the MIRR of the project using all three methods.

Discount approch=

reinvestment approch=

combination approch=