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    Capital Budgeting Problem

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    Problem A: Try evaluating the following projects with all of the basic capital budgeting tools, in other words, which project would you pick as the best:

    Projected

    Cash Flow Years 0 1 2 3 4 5

    Project A (500) 45 55 65 175 185

    Project B (250) 85 65 55 45 100

    Project C (400) 175 75 75 175 25

    Use 10% as your discount rate!

    Remember, NPV is always in dollars, IRR is a percentage, PI is an index number, and PB is in years. I have done PI and PB for you with project A.

    *Year 0 is your initial cost outlay -- the cost of the project.

    Calculate the following for each project:

    NPV IRR PI PB

    Project A 1.26** 4.86 yrs

    Project B

    -

    Project C

    Hint: there are many ways to solve this problem, some are shorter than others. For the shortest way, look in your calculator guide on calculating NPV and IRR. It involves using the blue g key and the Cfo and Cfj keys (using the HP-12C).

    Problem B: -- calculate DPB and MIRR for the following projects :

    YEAR 0 1 2 3 4 5
    Project B (250) 85 65 55 45 100

    Project C (400) 175 75 75 175 25

    © BrainMass Inc. brainmass.com June 3, 2020, 6:16 pm ad1c9bdddf
    https://brainmass.com/business/capital-budgeting/capital-budgeting-problem-53718

    Solution Summary

    The solution is in excel sheet that shows the calcualtions of NPV, IRR, MIRR, PI.

    $2.19

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