1. As director of capital budgeting for Meeker Coprporation, you are evaluating two mutually exclusive projects with the following net cash flows:

Project X Project Z
Year Cash Flow Cash Flow
0 $(100,000.00) $(100,000.00)
1 $50,000.00 $10,000.00
2 $40,000.00 $30,000.00
3 $30,000.00 $40,000.00
4 $10,000.00 $60,000.00

Assume Meeker's cost of capital is: 15%

1a. Calculate the NPV of each project based upon the above assumptions. Based upon result which project would you choose or would you choose not to do either project? Explain your decision.

1b. Consider that the investment cost is now $125,000 and that years 1 through 10 both provide cash flow for each project as assumed below. What would be the payback period for each project?

1c. Based on the data in 1b what would the NPV of the projects be and which one would you choose?
Is this different than if you based your decision on the payback period alone?
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Solution Summary

Calculates the NPV and payback period of two projects.

Given the following project cash flows, identify the correct statement(s). The firm's cost of capital is 15%.
Cash Flow
0 -50
1 150
2 75
3 -10
I. This project will have two IRRs.
II. The NPV of the project is $180.57.
III. The profitability index of the project is 2.61.
IV. The payback period of

B6. (Investment criteria) Consider the cash flows for the two capital budgeting projects given
here. The cost of capital is 10%.
a. Calculate the NPV for both projects.
b. Calculate the IRR for both.
c. Calculate the PI for both.
d. Calculate the MIRR for both.
e. Calculate the payback for both.
f. Which is the better p

Question 1
Assume you have just been promoted junior financial manager of a company. You are very smart and are planning to be promoted in the next 2-2.5 years. An associate of your company shows you a project with the following cash flows.
End of Year Cash Flows
0 -$100,000
1 $40,000
2 $40,000
3 $40,000
4 $40,000
5 -$

Can someone help with the following question?
The following is stream of expect cash flows from a project to replace an old sail boat with a new one. The new boat will cost $15,000 and will be good for 5 years. It will be traded-in for another boat at the end of its useful life. The following cash flows are expected:
Ye

ABC Manufacturing is thinking of launching a new product. The company expects to sell $900,000 of the new product in the first year and $1,500,000 each year thereafter. Direct costs including labor and materials will be 55% of sales. Indirect incremental costs are estimated at $80,000 a year. The project will require a new p

Why is the payback period not a preferred method in the capital budgeting decision-making process? Which decision-making criteria is the best to use for capital budgeting decisions? Why?
What is a sensitivity analysis? How is it determined? How can risk be addressed in the capital budgeting process?
What is an example of a

The Seattle Corporation has been presented with an investment opportunity which will yield end-of-year cash flows of $30,000 per year in Years 1 through 4, $35,000 per year in Years 5 through 9, and $40,000 in Year 10. This investment will cost the firm $150,000 today, and the firm's cost of capital is 8 percent.
a. What is t