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You are a financial analyst for the Brittle Company. The director of capital budgeting has asked you to analyze two proposed capital investments: Projects X
You are a financial analyst for the Brittle Company. The director of capital budgeting has asked you to analyze two proposed capital investments: Projects X and Y. Each project has a cost of $10,000, and the cost of capital for each is 12%. The projects' expected net cash flows are shown in the table below.
Expected Net Cash Flows
Year | Project X | Project Y |
0 | $10,000 | $10,000 |
1 | 6,500 | 3,500 |
2 | 3,000 | 3,500 |
3 | 3,000 | 3,500 |
4 | 1,000 | 3,500 |
- Use the Homework Student Workbook to calculate each project's net present value (NPV), internal rate of return (IRR), modified internal rate of return (MIRR), and profitability index (PI).
- Which project or projects should be accepted if they are independent?
- Which project or projects should be accepted if they are mutually exclusive?
Please complete the below sections with each step as if it were done on the workbook:
Modified Internal Rate of Return (MIRR): To obtain each project's MIRR, begin by finding each project's terminal value (TV) of cash inflows: \begin{tabular}{|c|c|c|c|c|c|c|c|c|c|c|} \hline TVx & = & $6,500(1.12) & + & $ & + & $ & + & $1,000 & = & $ \\ \hline TVy & = & $ & + & $ & + & $ & + & $3,500 & = & $ \\ \hline & & & & & & & & & & \\ \hline roject's & dis & t rate that equa & TV & ach & & & & & & \\ \hline & & & & & & & & & & \\ \hline MIRRx & = & % & & & & & & & & \\ \hline MIRRy & = & % & & & & & & & & \\ \hline \end{tabular}Step by Step Solution
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