# Capital budgeting

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?

https://brainmass.com/business/capital-budgeting/capital-budgeting-264478

#### 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