CAPITAL BUDGETING HW

Capital Budgeting HW 1. Compute the NPV. PI, and IRR for the following projects. Which projects should be accepted? a. The project requires an initial investment of $1,200 and provides five annual cash inflows of $350. Assume a cost of capital of 13%. NPV=131.03 PI=1.3 IRR = 14.05 b. The project requires an initial investment of $12,000 and provides five annual cash inflows of $3,500. Assume a cost of capital of 13%. NPU = $4 708.5 PI c. The project requires an initial investment of $12,000 and provides 10 annual cash inflows of $1,750. Assume a cost of capital of 13%. d. The project requires an initial investment of S12,000 and provides 10 annual cash inflows of $1,750. Assume a cost of capital of 8%. e. The project requires an initial investment of S12,000 and provides 10 annual cash inflows of $1,750. Assume a cost of capital of 6%. 2. Project L has a cost of $40,000, and its expected net cash inflows are $9,000 per year for 8 years a. What is the project's payback period? 40.00079,000 = 4.44016 b. The cost of capital is 12%. What are the project's NPV and Pl? 1+12 100 x 12 SO,ODD c. What is the project's IRR? * 3. A factory costs $550,000. You forecast that it will produce cash inflows of $100,000 in Year 1, $200,000 in Year 2, and $300,000 in Year 3. The cost of capital is 129. What is the NPV of the factory? Should accept or reject the project 4. You are presented a proposal for a project. Project Iron costs $5,000 and will bring in $25,000 in the first year. The next year you will have to pay out $20,000. With a 10% cost of capital, calculate the NPV for the project. Do you accept the project? NPV = $1198 5. Rollins Supplies Company is considering an expansion project. The cash flows are shown in the following table. The cost of capital is 20%. Year 0 1 2 3 4 5 Cash Flow -$2,500 1.500 1.700 1,000 1,000 1,000 Calculate the NPV and PI for the expansion project. Present Value Year 0 1 2 3 4 5 Cash Flow -$2,500 1,500 1,700 1,000 1,000 1,000 NPV 6. You are considering building a shopping mall. The initial investment for the mall is Si million. The cash flows are $500,000 for Year 1, $400,000 for Year 2, $300,000 for Year 3, and $100,000 for Year 4. What are the NPV and PI of the project if the cost of capital is 10%? 0 K=10% -1000 1 500 2 400 300 100