Assignment: Capital Budgeting
Provide your final answers in the spaces provided below. Excel is recommended but not required for problems 1-4. Excel is highly recommended for the final problem (#7).
1. Project M has a cost of $65,125, expected net cash inflows of $13,000 per year for 10 years, and a cost of capital of 11%.
(a) What is the project's payback period (to the closest year)?
(b) What is the project's discounted payback period?
(c) What is the project's NPV?
(d) What is the project's IRR?
(e) Based on the answers to parts (a) - (d), should the project be accepted? Why or why not?
6. Your division is considering two facility investment projects, each of which requires an upfront expenditure of $15 million. You estimate that the investments will produce the following net cash flows:
Year Project A Project B
1 $5,000,000 $20,000,000
2 $10,000,000 $10,000,000
3 $20,000,000 $6,000,000
(a) What are the projects' net present values when the cost of capital is 5%? Which project has the greater NPV?
(b) What are the projects' NPVs when the cost of capital is 10%? Which project has the greater NPV?
(c) What are the projects' NPVs when the cost of capital is 15%? Which project has the greater NPV?
(d) Do alternative rates change the decision? Explain.
7. You are a financial analyst for the University of South Carolina's athletic department. As part of its master facilities plan, the department's CFO has asked you to analyze a capital investment, Project X.The project cost $15 million and the cost of capital is 8.75%. The project's expected net cash flows are as follows:
|
Project X
|
|
Period
|
Cash Flows
|
|
0
|
$ (15,000,000.00)
|
|
1
|
$ 1,500,000.00
|
|
2
|
$ 1,530,000.00
|
|
3
|
$ 1,560,600.00
|
|
4
|
$ 1,591,812.00
|
|
5
|
$ 1,623,648.24
|
|
6
|
$ 1,656,121.20
|
|
7
|
$ 1,689,243.63
|
|
8
|
$ 1,723,028.50
|
|
9
|
$ 1,757,489.07
|
|
10
|
$ (3,207,361.15)
|
|
11
|
$ 2,000,000.00
|
|
12
|
$ 2,040,000.00
|
|
13
|
$ 2,080,800.00
|
|
14
|
$ 2,122,416.00
|
|
15
|
$ 2,164,864.32
|
|
16
|
$ 2,208,161.61
|
|
17
|
$ 2,252,324.84
|
|
18
|
$ 2,297,371.34
|
|
19
|
$ 2,343,318.76
|
|
20
|
$ (3,609,814.86)
|
|
21
|
$ 2,500,000.00
|
|
22
|
$ 2,550,000.00
|
|
23
|
$ 2,601,000.00
|
|
24
|
$ 2,653,020.00
|
|
25
|
$ 2,706,080.40
|
|
26
|
$ 2,760,202.01
|
|
27
|
$ 2,815,406.05
|
|
28
|
$ 2,871,714.17
|
|
29
|
$ 2,929,148.45
|
|
30
|
$ 2,987,731.42
|
(a) Calculate the project's payback period and discounted payback period.
(b) Calculate the project's net present value (NPV) and internal rate of return (IRR).
(c) Calculate the project's modified internal rate of return (MIRR).
Format your assignment according to the following formatting requirements:
1. The answer should be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
2. The response also include a cover page containing the title of the assignment, the student's name, the course title, and the date. The cover page is not included in the required page length.
3. Also Include a reference page. The Citations and references should follow APA format. The reference page is not included in the required page length.