Easy Problems 1-6

11-1 NPV Project L requires an initial outlay at t=0 of $65,000, its expected cash inflows are $12,000 per year for 9 years, and its WACC is 9%. What is the projects NPV?

11-2 IRR Refer to problem 11-1. What is the projects IRR?

ANSWER 11-3 MIRR Refer to problem 11-1. What is the projects MIRR?

11-4 PAYBACK PERIOD Refer to problem 11-1. What is the projects payback?

ANSWER 11-5 DISCOUNTED PAYBACK Refer to problem 11-1. What is the projects discounted payback?

11-6 NPV Your division is considering two projects with the following cash flows (in millions):

a. What are the projects NPVs assuming the WACC is 5%? 10%? 15%?

ANSWER b. What are the projects IRRs at each of these WACCs?

ANSWER c. If the WACC was 5% and A and B were mutually exclusive, which project would you choose? What if the WACC was 10%? 15%? (Hint: The crossover rate is 7.81%.)

ANSWER

Project A Project B 0 H -$25 - $20 $5 $10 $10 $9 $17 $6