Problem 1. Project K has a cost of $52,125, its expected net cash inflows are $12,000 per year for 8 years, and its cost of capital is 12 percent. (Hint: Begin by constructing a time line)
a. what is the projects payback period (to the closest years)?
b. what is the projects discounted payback period?
c. what is the projects npv?
d. what is the projects irr?
e. what is the projects mirr?
Problem 2. Your division is considering two investment projects, each of which requires an up-front 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
What are the two projects net present values, assuming the cost of capital is 10 percent? 5 percent? 15 percent?