Your company is considering the following three projects. Assuming that the cost
ID: 2764076 • Letter: Y
Question
Your company is considering the following three projects.
Assuming that the cost of capital is 8%, what is Project Whiskey’s NPV? And, should the project be accepted if we used NPV as the basis of decision? Show your calculator inputs (CF0=?, CF1=?, CF2=?, CF3=?, CF4=?, etc.) to receive full credit.
What is Project Whiskey’s IRR? And, should the project be accepted if we used IRR as the basis of decision? Assume that the cost of capital is 8%. Show your calculator inputs (CF0=?, CF1=?, CF2=?, CF3=?, CF4=?, etc.) to receive full credit.
What is Project Foxtrot’s MIRR? And, should the project be accepted if we used MIRR as the basis of decision? Assume that the cost of capital is 8%. Show your calculator inputs (CF0=?, CF1=?, CF2=?, CF3=?, CF4=?, etc.) to receive full credit.
What is Project Foxtrot’s payback period? Should the project be accepted if the maximum payback period is 3.90 years? Show your work to receive full credit.
What is Project Foxtrot’s discounted payback period if our WACC is 8%? Should the project be accepted if the maximum payback period is 4.05 years? Show your work to receive full credit.
Explanation / Answer
a)Project whishkey NPV
CF0=-100
Cf1=75
cf2=0
cf3=75
cf4=0
NPV=-100+75/1.08^1+0/1.08^2+75/1.08^3+0/1.08^4
=$28.98
We should accept the project as it is positive
b)IRR use irr function in excel
=irr(-100,75,0,75,0)=24%
It should be accepted as IRR is higher than cost ofcapitla of 8%
c)use MIRR formuale in excel
Cost of capitla and reinvesting same and it is 8%
=mirr(-100:20:30:40:50,8%,8%)
=11%
we should accept project as it is gretaher thnan cost of capital of 8%
d)foxton pay back period
cumm cash flow are (-100,-80,-50,-10,40)
=3+(10/50)=3.2 years
Yes it should be accepted as it is lesser than required payback of 3.9 year
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