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Tutorial 2 Capital Budgeting
1.
Project K costs $52,125, its expected cash inflows are $12,000 per year for 8 years, and
its WACC is 12%.
a.
b.
c.
d.
e.
What is the project’s NPV?
What is the project’s IRR?
What is the project’s MIRR?
What is the project's payback?
What is the project's discounted payback?
2. A company has a 12% WACC and is considering two mutually exclusive investments
(that cannot be repeated) with the following cash flows:
0
1
2
3
Project A -$300 -$387 -$193 -$100
Project B -$405 $134 $134 $134
a.
b.
c.
d.
e.
4
5
6
7
$600
$134
$600
$134
$850
$134
-$180
$0
What is the NPV for project A and B?
What is the IRR for project A and B?
What is the MIRR for project A and B?
From your answers to parts a-c, which project would be selected?
Construct NPV profiles for Projects A and B.
Discount Rate
0.0%
10.0
12.0
18.1
20.0
24.0
30.0
NPV Plan A
NPV Plan B
f. Calculate the crossover rate where the two projects' NPVs are equal.
g. What is each project's MIRR at a WACC of 18%?