Your division is considering two investment projects, each of which requires an
ID: 2797719 • Letter: Y
Question
Your division is considering two investment projects, each of which requires an upfront expenditure of $25 million. You estimate that the cost of capital is 10% and that the investments will produce the following after-tax cash flows ( in millions of dollars ).
Year Project A project B
1 5 20
2 10 10
3 15 8
4 20 6
a.What is the regular payback period for each of the projects?
b. What is the discounted payback period for each of the projects?
c. If the two projects are independent and the cost of capital is 10% which project or projects should the firm undertake?
d. if the two projects are mutually exclusive and the cost of capital is 5% which project should the firm undertake?
e. If the two projects are mutually exclusive and the cost of capital is 15% which project should the firm undertake?
F. What is the crossover rate?
G. If the cost of Capital is 10% what is the MIRR of each project?
I do not need any excel sheet , plz be specific as much as you can with details and formulas and I want to know where didi you get all numbers with calculator not excel sheet
Explanation / Answer
As per chegg guideline in case of Multiple question expert have to do first four parts
Project A
Using Financial Calculator
CF0=-25 (press enter) [Press down Key]
CF1= 5 (press enter) [Press down Key]
F01=1 (press enter) [Press down Key]
CF2= 10 (press enter) [Press down Key]
F02=1 (press enter) [Press down Key]
CF3=15 (press enter) [Press down Key]
F03=1 (press enter) [Press down Key]
CF4=20 (press enter) [Press down Key]
F04=1 (press enter) [Press down Key]
Press NPV
Interest =10
Press CPT and NPV
NPV=12.74
Scroll down twice Press CPT
Pay back period=2.666 years
Scroll down Press CPT
Discounted payback period=3.07 years
When Interest =5%
Press NPV
Interest =5
Press CPT and NPV
NPV=18.24
Project B
Using Financial Calculator
CF0=-25 (press enter) [Press down Key]
CF1= 20 (press enter) [Press down Key]
F01=1 (press enter) [Press down Key]
CF2=10 (press enter) [Press down Key]
F02=1 (press enter) [Press down Key]
CF3=8 (press enter) [Press down Key]
F03=1 (press enter) [Press down Key]
CF4=6 (press enter) [Press down Key]
F04=1 (press enter) [Press down Key]
Press NPV
Interest =10
Scroll down
Press CPT and NPV
NPV=11.55
Press down key twice+ Press CPT
Payback period=1.5 years
Scroll down Press CPT
Discounted payback period=1.825 years
When Interest =5%
Press NPV
Interest =5
Press CPT and NPV
NPV=14.96
Answer 1 Project A- Pay back period=2.666 years
Project B- Pay back period=1.5 years
Answer 2 Project A-Discounted payback period=3.07 years
Project B-Discounted payback period=1.825 years
Answer 3 Project A-NPV=12.74
Project B- NPV=11.55
Both projects should be accepted since NPV is positive for both projects
Answer 4 Project A-NPV=18.24
Project B- NPV=14.96
Project A should be accepted because of higher NPV
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