FIN Chapter 8 Net Present Value and Other Investment Criteria Calculating NPV For the cash flows in the previous problem, what is the NPV at a discount rate of 0 percent What if the discount rate is 10 percent If it is 20 percent If it is 30 percent (the cash flows in the previous problem) Year 0 CF $19400 Year 1 CF 10400 Year 2 CF 9320 Year 3 Cf 6900 MIRR Doak Crop is evaluating a Project with the following cash Flow Year Cash Flow Year 0 CF ($32,600) Year 1 CF 11520 Year 2 CF 14670 Year 3 CF 11270 Year 4 CF 10940 Year 5 CF 4230 The company uses an interest rate of 10 percent on all of its project Calculate the MIRR of the project using all three methods Suppose the company in the previous problem ( Doak Corp)uses a discount rate of 11 percent and a reinvestment rate of 8 percent on all of its projects Calculate the MIRR of the project using all three methods with these rates NPV Valuation The Yurdone Corporation wants to set up a private cemetery business According to the CFO, Barry M Deep, business is looking up As a result, the cemetery project will provide a net cash inflow of $164,000 for the firm during the first year, and the cash flows are projected to grow at a rate of 4 7 percent per year forever The project requires an initial investment of $1,825,000 A If company requires a return of 12 percent on such undertakings, should the cemetery business be started B The company is somewhat unsure about the assumption of a 4 7 percent growth rate in its cash flows At what constant growth rate would the company just break even if it still required a return of 12 percent on its investment Calculating IRR A project has the following cash flows What is the IRR for this project If the required return is 10 percent, should the firm accept the project What is the NPV of this project What is the NPV of the project if the required return is 0 percent 24 percent What is going on here Sketch the NPV profile to help you with your answer Year Cash Flow Year 0 CF $112,000 Year 1 CF 67000 Year 2 CF 57000

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FIN Chapter 8: Net Present Value and Other Investment Criteria Calculating NPV. For the cash flows in the previous problem, what is the NPV at

FIN Chapter 8: Net Present Value and Other Investment Criteria

Calculating NPV.

For the cash flows in the previous problem, what is the NPV at a discount rate of 0 percent? What if the discount rate is 10 percent? If it is 20 percent? If it is 30 percent

(the cash flows in the previous problem)

Year 0 / CF $19400

Year 1 / CF 10400

Year 2 / CF 9320

Year 3 / Cf 6900

MIRR.

Doak Crop is evaluating a Project with the following cash Flow

Year

Cash Flow

Year 0 / CF ($32,600)

Year 1 / CF 11520

Year 2 / CF 14670

Year 3 / CF 11270

Year 4 / CF 10940

Year 5 / CF -4230

The company uses an interest rate of 10 percent on all of its project. Calculate the MIRR of the project using all three methods

Suppose the company in the previous problem ( Doak Corp)uses a discount rate of 11 percent and a reinvestment rate of 8 percent on all of its projects. Calculate the MIRR of the project using all three methods with these rates.

NPV Valuation.

The Yurdone Corporation wants to set up a private cemetery business. According to the CFO, Barry M. Deep, business is "looking up." As a result, the cemetery project will provide a net cash inflow of $164,000 for the firm during the first year, and the cash flows are projected to grow at a rate of 4.7 percent per year forever. The project requires an initial investment of $1,825,000.

A. If company requires a return of 12 percent on such undertakings, should the cemetery business be started?

B. The company is somewhat unsure about the assumption of a 4.7 percent growth rate in its cash flows. At what constant growth rate would the company just break even if it still required a return of 12 percent on its investment?

Calculating IRR.