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Capital Budgeting Problem

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

Solution Summary

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

$2.19