Problem: USE THE FOLLOWING DATA FOR THE NEXT EIGHT PROBLEMS:
The director of capital budgeting for Good Foods, Inc. has identified two mutually exclusive projects, L and S, with the following expected net cash flows:
....................... Expected Net Cash Flows
Year....................Project L..................Project S
0........................($100).....................($100)
1.............................10..........................70
2............................ 60..........................50
3............................ 80..........................20
Both projects have a cost of capital of 10 percent.
1. What is the payback period for Project S?
2. What is Project L's NPV?
3. What is Project L's IRR?
4. What is Project L's PI?
5. What is Project S's PI?
6. What is Project L's MIRR?
7. What is Project S's MIRR?
8. What is the crossover point? (HINT: To find the precise crossover point, determine the cash flows for the Delta Project, which is the difference between the two projects' cash flows (e.g., Project L minus Project S), then calculate IRR of Delta Project.) An alternate way to derive an approximate crossover point is to plot the NPV profiles for the two projects?