This homework submission should include all calculations for part (a), completed
ID: 2807104 • Letter: T
Question
This homework submission should include all calculations for part (a), completed on the designated tab of the Homework Student Workbook, and a document explaining the implications of your findings for the business or business transaction. After reading the assigned chapters, respond to the following:
You are a financial analyst for the Brittle Company. The director of capital budgeting has asked you to analyze two proposed capital investments: Projects X and Y. Each project has a cost of $10,000, and the cost of capital for each is 12%. The projects' expected net cash flows are shown in the table below.
Expected Net Cash Flows
Year
Project X
Project Y
0
– $10,000
– $10,000
1
6,500
3,500
2
3,000
3,500
3
3,000
3,500
4
1,000
3,500
Use the Homework Student Workbook to calculate each project's net present value (NPV), internal rate of return (IRR), modified internal rate of return (MIRR), and profitability index (PI).
Which project or projects should be accepted if they are independent?
Which project or projects should be accepted if they are mutually exclusive?
Year
Project X
Project Y
0
– $10,000
– $10,000
1
6,500
3,500
2
3,000
3,500
3
3,000
3,500
4
1,000
3,500
Explanation / Answer
Soln : Please refer table, we have used the excel and for IRR used the excel function as IRR(cash flows)
Now for MIRR, please refer this table for both projects:
PI for project X = PV of future cash flows/cost of capital = 10966/10000 = 1.097
PI of project Y = 10630.72/10000 = 1.063
Year(t) 0 1 2 3 4 Project X Cash Flows -10000 6500 3000 3000 1000 cost of capital 12% 12% 12% 12% 12% Discount rate 1.12 1.12 1.12 1.12 1.12 PV = cash flow/(discount rate)^t -10000 5803.57 2391.58 2135.34 635.52 NPV(Sum of PV) 966.01 IRR(X) 18% Project Y Cash Flows -10000 3500 3500 3500 3500 cost of capital 12% 12% 12% 12% 12% Discount rate 1.12 1.12 1.12 1.12 1.12 PV = cash flow/(discount rate)^t -10000 3125.00 2790.18 2491.23 2224.31 NPV(Sum of PV) 630.72 IRR(Y) 15%Related Questions
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