USE THE FOLLOWING DATA FORTHE NEXT EIGHT PROBLEMS:
Thedirector of capitalbudgetingfor Good Foods, Inc.hasidentifiedtwomutuallyexclusive projects, L and S, with the following expected net cash flows:
..............................Expected Net Cash Flows
A firm with a 14 percent 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 5,6
4. Thedirector of capitalbudgetingfor Giant Company Inc.hasidentifiedtwomutuallyexclusive projects, L and S, with the following expected net cash flows:
Expected Net Cash Flows
Year Project L Project S
0 ($200) ($200)
1 20 140
2 120 100
3 160 40
Both projects have a cost of ca
Your division is considering two investment projects, each of which requires an up-front expenditure of $28 million. You estimate that the cost of capital is 8% and that the investments will produce the following after-tax cash flows (in millions of dollars):
Year Project A Project B
1 5 20
NPV Project K costs 52,125, its expected net cash inflows are 12,000 per year for 8 years, and its WACC is 12% What is the projects NPV?
IRR Refer to problem 11-1 What is theIRR?
Payback period: Refer to problem 11-1. What is the MIRR?
CAPITALBUDGETING CRITERIA. A firm with 14% WACC is eva
B6. (Investment criteria) Consider the cash flows forthetwocapitalbudgeting projects given
here. The cost of capital is 10%.
a. Calculatethe NPV for both projects.
b. CalculatetheIRRfor both.
c. Calculatethe PI for both.
d. Calculatethe MIRRfor both.
e. Calculatethepaybackfor both.
f. Which is the better p
My small business is considering twomutuallyexclusive projects, X and Y, whose costs and cash flows are shown below:
Year Project X Cash Flow Project Y Cash Flow
0 -$2,000 -$2,000
1 200 2,000
2 600 200
3 800 100
4 1,400 75
The projects are equally risky, and my small business cost of c
1. If twomutuallyexclusive projects were being compared, would a high cost of capital favor the longer-term or the shorter-term project? Why? If the cost of capital declined, would that lead firms to invest more in longer-term projects or shorter-term projects? Would a decline (or increase) in the WACC cause changes in the
Dream Inc. is considering two projects with the following after-tax cash flows
Expected net cash flows
Time Project A Project B
0 ($30) ($30)
1 $5 $20
2 $10 $10
3 $15 $8
4 $20 $6
Either venture would be funded with 40% equity and 60% debt. The cost of debt is 8%. The company has a beta of 1.5, the risk-free r