Assignment- Capital Budgeting Part 1
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You are considering the following three projects. A &B are mutually exclusive while C is independent.
Following are their expected cash flows
|
year
|
project A
|
Project B
|
Project C
|
|
0
|
-60,000.00
|
-40,000.00
|
-20,000.00
|
|
1
|
0
|
40,000.00
|
35,000.00
|
|
2
|
82,000.00
|
40,000.00
|
30,000.00
|
|
3
|
60,000.00
|
20,000.00
|
2,000.00
|
|
4
|
20,000.00
|
10,000.00
|
-40,000.00
|
Assuming no capitol rationing a required rate of return (cost of capital) of 11% for all three projects.
1) Calculate NPV for each project.
2) Calculate IRR(s) for each project.
3) Calculate PI for each project.
4) Using cost of capital, as a financing and reinvestment rate, calculate MIRR for each project.
5) If A&B profiles cross, calculate the exact crossover point between project A & B.
6) Which of the three projects, if any, should be accepted and why?