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Capital Budgeting Exercise




Question;Instructions: leave all answers, whether in $, %, or years, to 2-decimal places. Q1 A project will cost $2.0 million. The company uses a 10% discount rate as a threshold for accepting capital projects. It is expected to have a 5 year life and return the following: t: 0 1 2 3 4 5 CF0 CF1 CF2 CF3 CF4 CF5 Year0 Year1 Year2 Year3 Year4 Year5 2014 Summer2 ?? $400,000 $500,000 $600,000 $800,000 $700,000 k = ??% a) Calculate the project?s Net Present Value (NPV). NPV = <== use "NPV" Excel formula b) Calculate the Profitability Index (PI). PI = <== no Excel formula for this NPV of all POSITIVE CFs: (1) take (1) divided by (2) to get PI, NPV of all NEGATIVE CFs: (2) ignore negative sign in (2), PI is always positive c) Calculate the Internal Rate of Return (IRR). IRR = <== use "IRR" Excel formula d) Calculate the Payback Period (PB). PB = <== no Excel formula for this e) Calculate the Discounted Payback Period (DPB). DPB = <== no Excel formula for this f) Assuming the funds can be invested at 5% [RI], calculate the Terminal Value (TV) and the MIRR. RI = ??% MIRR = <== use "MIRR" Excel formula TV = <== TV is the Net Future Value (NFV) of all [positive] cash inflows in the project.


Paper#40833 | Written in 18-Jul-2015

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