Please show excel how you get anser!!! This homework submission should include a

Question

Please show excel how you get anser!!!

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?

Please show excel how you get anser!!!

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?

Modified Internal Rate of Return (MIRR): To obtain each project's MIRR, begin by finding each project's terminal value (TV) of cash inflows: TVx = $6,500 (1.12)^3 + $ + $ + $1,000 = $ TVy = $ + $ + $ + $3,500 = $

Explanation / Answer

Under MIRR method, all cash flows, except from intial investment are brought to a terminal value using the discount rate given (cost of capital). This results in a single stream of cash inflow in the terminal year. The MIRR is then obtained by assuming single outflow in the zeroth year and the terminal cash inflow. The discount rate which equates the present value of the terminal cash inflow to the zeroth year outflow is called MIRR. Terminal cash inflow is computed by calculating future value of the given cash inflows. Future value is computed as -

FV = Amount x (1 + r)t , where r is the rate of interest, t being the years remaining

Now, this terminal value will occur in year end 4. MIRR would be the rate at which the present value of the terminal value equals the initial investment. So, we have -

Project X

Terminal Value x PVF (Rate, 4) = Initial Investment

or, $17255.232 x PVF (Rate, 4) = $10000

or, PVF (Rate, 4) = 0.57953436963

We look for this value in the PVF table in year 4 -

At 14%, Year 4 = 0.59208027735

At 15%, Year 4 = 0.57175324558

MIRR lies between these two values, i.e., it is greater than 14% but less than 15%. So, we need to interpolate.

Difference required (From 14%) = 0.59208027735 - 0.57953436963 = 0.01254590772

Total Difference (between 14% and 15%) = 0.59208027735 - 0.57175324558 = 0.02032703177

MIRR = Lower rate + [(Difference in rates) x Difference required / Total Difference]

Or, MIRR = 14% + [1% x 0.01254590772 / 0.02032703177] = 14.62% (approx)

Project Y

Terminal Value x PVF (Rate, 4) = Initial Investment

or, $16727.648 x PVF (Rate, 4) = $10000

or, PVF (Rate, 4) = 0.59781267515

We look for this value in the PVF table in year 4 -

at 13%, year 4 = 0.61331872767

at 14%, year 4 = 0.59208027735

MIRR lies between these two values, i.e., it is greater than 13% but less than 14%. So, we need to interpolate.

Difference required (From 13%) = 0.61331872767 - 0.59781267515 = 0.01550605252

Total Difference (between 13% and 14%) = 0.61331872767 - 0.59208027735 = 0.02123845032

MIRR = Lower rate + [(Difference in rates) x Difference required / Total Difference]

Or, MIRR = 13% + [1% x 0.01550605252 / 0.02123845032] = 13.73% (Approx)

Terminal Value Year Project X Project Y 1 $6500 x (1.12)3 = $9132.032 $3500 x (1.12)3 = $4917.248 2 $3000 x (1.12)2 = $3763.2 $3500 x (1.12)2 = $4390.4 3 $3000 x (1.12)1 = $3360 $3500 x (1.12)1 = $3920 4 $1000 x (1.12)0 = $1000 $3500 x (1.12)0 = $3500 Terminal Value $17255.232 $16727.648

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