Question 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 projected payback period (to the closest year)?
B. What is the project's discounted payback period?
C. What is the projected NPV?
D. What is the projected IRR?
E. What is the project's MIRR?
Question 2. Your division is considering two investment projects, each of which requires an up-front expenditure of $15 million. Your 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 value, assuming the cost of capital is 10 percent? 5 percent? 15 percent?
Question 3. Edelman Engineering is considering including two pieces of equipment, a truck and an overhead pulley system, in this year's capital budget. The project are independent. The cash outlay for the truck is 17,000, and that for the pully system is 22,430. The firm's cost of capital is 14 percent. After-tax cash flows, including depreciation, are as follows:
Year Truck Pully
1 5,100 7500
2 5,100 7500
3 5100 7500
4 5100 7500
5 5100 7500
Calculate the IRR, the NPV, and the MIRR for the project, and indicate the correct accept/reject decision for each.
Question 4. Your company is considering two mutually exclusive projects. X and Y, whose costs and cash flows are shown below:
Year X Y
0 ($1,000) ($1,000)
1 100 1,000
2 300 100
3 400 50
4 700 50
The projects are equally risky, and their cost of capital is 12 percent. You must make a recommendation, and you must base it on the modified IRR (MIRR). What is the MIRR of the better project?