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Capital Budgeting

1. Barkley finances only with retained earnings, and it uses the CAPM with a historical beta to determine its cost of equity. The risk-free rate is 7%, and the market risk premium is 5%. Barkley is considering a project that has a cost at t=0 of $2,000 and is expected to provide cash inflows of $1,000 per year for 3 years. What is the project's MIRR?
The stock of Barkley Inc. and "the market" provided the following returns over the last 5 years:

Year Barkley Market
1998 -5% -3%
1999 21 10
2000 9 4
2001 23 11
2002 31 15

2. You are evaluating a project that is expected to produce cash flows of $5,000 each year for the next 10 years and $7,000 each year for the following 10 years. The IRR of this 20-year project is 12%. If the firm's WACC is 8%, what is the project's NPV?

3. Notice this project requires two cash outflows at Year 0 and 2, and produces positive cash inflows in the remaining periods. The project's appropriate WACC is 10% and its modified rate of return (MIRR) is 13.50%. What is the value of the project's cash outflow in Year 2?

A project has the following cash flows:

Year Cash Flow
0 ($250)
1 100
2 (?)
3 150
4 275
5 300

Solution Summary

Calculates MIRR, NPV and cash outflow for projects.

$2.19