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Capital Budgeting: Calculate NPV, IRR, MIRR, and Payback for Each Project

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A firm with a 14% WACC is evaluating two projects for this year's capital budget. After tax cash flows, including depreciation, are as follows:

----------------0---------1---------2-------3--------4-------5
Project A -$6,000 $2,000 $2,000 $2,000 $2,000 $2,000
Project B -$18,000 $5,600 $5,600 $5,600 $5,600 $5,600

a) Calculate NPV, IRR, MIRR, payback, and discounted payback for each project.
b) Assuming the projects are independent, which one or ones would you recommend?
c) If the projects are mutually exclusive, which would you recommend?
d) Notice that the projects have the same cash flow timing pattern. Why is there a conflict between NPV and IRR?

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Solution Summary

This solution provides NPV, IRR, MIRR, cumulative cash flow, payback period, discounted cash flow and discounted payback for the two projects and answers for the three discussion questions in the attached Excel file.

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