Question :
1 NPV Project K costs $52,125, its expected cash inflows are $12,000 per year for 8 years, and its WACC is 12%. What is the project's NPV?
2 IRR Refer to problem 11-1. What is the project's IRR?
3 MIRR Refer to problem 11-1. What is the project's MIRR?
4 PAYBACK PERIOD Refer to problem 11-1. What is the project's payback?
5 DISCOUNTED PAYBACK Refer to problem 11-1. What is the project's discounted payback?
6 NPV Your division is considering two projects with the following cash flows (in millions):
0123
Project A $25 $5 $10 $17 Project B $20 $10 $9 $6
a. b. c.
What are the projects' NPVs assuming the WACC is 5%? 10%? 15%? What are the projects' IRRs at each of these WACCs?
If the WACC was 5% and A and B were mutually exclusive, which project would you choose? What if the WACC was 10%? 15%? (Hint: The crossover rate is 7 81%.)
12-2 PROJECT CASH FLOW Eisenhower Communications is trying to estimate the first-year cash flow (at Year 1) for a proposed project. The financial staff has collected the following information on the project:
Sales revenues Operating costs (excluding depreciation) Depreciation Interest expense
The company has a 40% tax rate, and its WACC is 10%.
$10 million 7 million 2 million 2 million
a. What is the project's cash flow for the first year t 1 ? b. If this project would cannibalize other projects by $1 million of cash flow before taxes per year, how would this change your answer to part a? c. Ignore part b. If the tax rate dropped to 30%, how would that change your answer to part a?
12-3 AFTER-TAX SALVAGE VALUE Kennedy Air Services is now in the final year of a project. The equipment originally cost $20 million, of which 80% has been depreciated. Kennedy can sell the used equipment today for $5 million, and its tax rate is 40%. What is the equipment's after-tax salvage value?
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