Question
A firm with a 14% WACC is evaluating two projects for this year's capital budget. After-tax cash flows, including depreciation, are as follows: 0 1
A firm with a 14% WACC is evaluating two projects for this year's capital budget. After-tax cash flows, including depreciation, are as follows:
| 0 | 1 | 2 | 3 | 4 | 5 |
| Project M | -$24,000 | $8,000 | $8,000 | $8,000 | $8,000 | $8,000 |
| Project N | -$72,000 | $22,400 | $22,400 | $22,400 | $22,400 | $22,400 |
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Calculate NPV for each project. Do not round intermediate calculations. Round your answers to the nearest cent.
Project M: $
Project N: $
Calculate IRR for each project. Do not round intermediate calculations. Round your answers to two decimal places.
Project M: %
Project N: %
Calculate MIRR for each project. Do not round intermediate calculations. Round your answers to two decimal places.
Project M: %
Project N: %
Calculate payback for each project. Do not round intermediate calculations. Round your answers to two decimal places.
Project M: years
Project N: years
Calculate discounted payback for each project. Do not round intermediate calculations. Round your answers to two decimal places.
Project M: years
Project N: years
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Assuming the projects are independent, which one(s) would you recommend?
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If the projects are mutually exclusive, which would you recommend?
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Notice that the projects have the same cash flow timing pattern. Why is there a conflict between NPV and IRR?
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International Financial Management
Authors: Geert Bekaert, Robert J. Hodrick
4th International Edition
013284298X, 9780132842983
