# Understanding Capital Budgeting Practice Problems

Part 1. Capital Budgeting Practice Problems

a Use expected cash flows:

Year Cash flow

0 -$400,000

1 $100,000

2 $120,000

3 $850,000

Show the PV with the following discount rates: 0%, 2%, 6%, 11%

What is IRR with a cost of capital of 5%?

Plot the discount rate on a chart, show where graph intersects horizontal axis.

Describe what you see in the chart/graph.

b. Use expected cash flows:

Year Cash flow

0 -$815,000

1 $141,000

2 $320,000

3 $440,000

Calculate the IRR.

Show the PV with the following discount rates: 1%, 4%, 10%, 18%

Plot the discount rate on a chart, show where graph intersects horizontal axis.

Describe what you see in the chart/graph.

c. What is the PV of a project requiring a $4.2 million investment has a profitability index of 0.94?

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#### Solution Preview

Your tutorial is attached in excel and includes using NPV and MIRR ...

#### Solution Summary

Your tutorial is attached in excel and includes using NPV and MIRR formulas in Excel to get needed amounts, two graphs with crossover points circled, discussion about the graphs and an analysis of finding NPV from profitability index. A reference for profitability index is included.