Capital budgeting practice problems


Capital Budgeting Practice Problems

Question 1: Consider the project with the following expected cash flows:

Year    Cash flow
0    - $550,000
1       $ 90,000
2      $100,000
3      $450,000

If the discount rate is 0%, what is the project's net present value?
If the discount rate is 4%, what is the project's net present value?
If the discount rate is 8%, what is the project's net present value?
If the discount rate is 10%, what is the project's net present value?
What is this project's internal rate of return?

Question 2: Consider a project with the expected cash flows:

Year    Cash flow
0       - $315,000
1         + 71,000
2       + 150,000
3     + $150,000

What is this project's internal rate of return?

If the discount rate is 0%, what is this project's net present value?

If the discount rate is 4%, what is this project's net present value?

If the discount rate is 8%, what is this project's net present value?

If the discount rate is 12%, what is this project's net present value?

I think by using the present value formulas for each but not sure how to get the entire group years this in refreance to both questions?

Question 3: A project requiring a $3.3 million investment has a profitability index of 0.96. What is its net present value?

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Microeconomics: Capital budgeting practice problems
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