Cap Budgeting Cp Sol
Name: _____________________________ ID: ___________________ Section: ______
1.
Adler Enterprises is considering a project that has the following cash flow and WACC data. What is the project's NPV? Note that a project's projected NPV can be negative, in which case it will be rejected.
WACC:
10.00%
Year:
0
1
2
3
Cash flows:
-$1,000
$450
$460
$470
Answer: 142.37
2. Choi Computer Systems is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's projected IRR can be less than the WACC (and even negative), in which case it will be rejected.
Year:
0
1
2
3
Cash flows:
-$1,000
$450
$470
$490
Answer: 19.05%
3. ZumBahlen Inc. is considering the following mutually exclusive projects:
Project A Project B
Year Cash Flow Cash Flow 0 -$5,000 -$5,000 1 200 3,000 2 800 3,000 3 3,000 800 4 5,000 200
At what cost of capital will the net present value of the two projects be the same? (That is, what is the “crossover” rate?)
Answer: 16.15%
4. Hindelang Inc. is considering a project that has the following cash flow and WACC data. What is the project's MIRR? Note that a project's projected MIRR can be less than the WACC (and even negative), in which case it will be rejected.
WACC:
10.00%
Year:
0
1
2
3
4
Cash flows:
-$900
$300
$320
$340
$360
Answer: 14.01%
5. Stewart Associates is considering a project that has the following cash flow data. What is the project's payback?
Year:
0
1
2
3
4
5
Cash flows:
-$1,000
$300
$310
$320
$330
$340
Answer: 3.21 years
6. Bey Bikes is considering a project that has the following cash flow and WACC data. What is the project's discounted payback?
WACC:
10.00%
Year:
0
1
2
3
4
Cash flows:
-$1,000
$525
$485
$445
$405
Answer: 2.36 years
7. Walker & Campsey wants to invest in a new computer system, and management has narrowed the choice to Systems A
1.
Adler Enterprises is considering a project that has the following cash flow and WACC data. What is the project's NPV? Note that a project's projected NPV can be negative, in which case it will be rejected.
WACC:
10.00%
Year:
0
1
2
3
Cash flows:
-$1,000
$450
$460
$470
Answer: 142.37
2. Choi Computer Systems is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's projected IRR can be less than the WACC (and even negative), in which case it will be rejected.
Year:
0
1
2
3
Cash flows:
-$1,000
$450
$470
$490
Answer: 19.05%
3. ZumBahlen Inc. is considering the following mutually exclusive projects:
Project A Project B
Year Cash Flow Cash Flow 0 -$5,000 -$5,000 1 200 3,000 2 800 3,000 3 3,000 800 4 5,000 200
At what cost of capital will the net present value of the two projects be the same? (That is, what is the “crossover” rate?)
Answer: 16.15%
4. Hindelang Inc. is considering a project that has the following cash flow and WACC data. What is the project's MIRR? Note that a project's projected MIRR can be less than the WACC (and even negative), in which case it will be rejected.
WACC:
10.00%
Year:
0
1
2
3
4
Cash flows:
-$900
$300
$320
$340
$360
Answer: 14.01%
5. Stewart Associates is considering a project that has the following cash flow data. What is the project's payback?
Year:
0
1
2
3
4
5
Cash flows:
-$1,000
$300
$310
$320
$330
$340
Answer: 3.21 years
6. Bey Bikes is considering a project that has the following cash flow and WACC data. What is the project's discounted payback?
WACC:
10.00%
Year:
0
1
2
3
4
Cash flows:
-$1,000
$525
$485
$445
$405
Answer: 2.36 years
7. Walker & Campsey wants to invest in a new computer system, and management has narrowed the choice to Systems A