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Capital budgeting

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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?
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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?

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Solution Preview

Please see the attachment. The calculations are in the excel file using excel functions.

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 ...

Solution Summary

The solution explains how to calculate NPV, IRR, PI and MIRR

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