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Capital Budgeting Exercise

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Instructions: leave all answers, whether in $, %, or years, to 2-decimal places.;Q1A 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;CF0CF1CF2CF3CF4CF5;Year0Year1Year2Year3Year4Year52014 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#80075 | Written in 18-Jul-2015

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