13. Cash flows for two projects are presented below. Assume that the appropriate risk-adjusted cost of capital is 12%. Calculate the NPV, IRR, and MIRR for both projects.Which project should be selected if the risk-adjusted cost of capital is 12%? Nowassume that the appropriate risk-adjusted cost of capital is 18%. Calculate the NPV,IRR, and MIRR for both projects. Which project should be selected if the risk-adjustedcost of capital is 18%? Feel free to use Excel. Show your answers and supportingwork/spreadsheet.3457++$600$134Project A-$300-$387-$193-$100$600$850-$180Project B-$405$134$134$134$134$134$0 14. A company is evaluating a proposal to purchase a new piece of machinery, and thecompany spent $5,000 last year studying the possibility of purchasing the machine. Thebase price of the machine is $108,000, and shipping and installation costs total $12,500.For tax depreciation purposes the machine qualifies as a MACRS 3-year asset (withdepreciation rates of 33, 45, 15, and 7 percent). If the machine is purchased, workingcapital will have to increase by $5,500. The machine will not increase sales, but it isexpected to reduce labor costs by $44,000 per year. The applicable tax rate is 35percent, and the applicable risk-adjusted cost of capital is 12 percent. At the end ofthree years the machine will be sold for $65,000. Prepare the cash flow spreadsheetdisplaying your calculations and your cash flows per year, attach it as part of youranswer, and then answer the following questions:A. What should you do with the $5,000 spent last year?B. What is the year zero cash flow?C. What are the total cash flows for years 1, 2, and 3?D. Should the company purchase the machine? Why or why not?

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Calculate the NPV, IRR, and MIRR for both projects.

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter16: Country Risk Analysis

Section: Chapter Questions

Problem 20QA

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

13. Cash flows for two projects are presented below. Assume that the appropriate risk-
adjusted cost of capital is 12%. Calculate the NPV, IRR, and MIRR for both projects.
Which project should be selected if the risk-adjusted cost of capital is 12%? Now
assume that the appropriate risk-adjusted cost of capital is 18%. Calculate the NPV,
IRR, and MIRR for both projects. Which project should be selected if the risk-adjusted
cost of capital is 18%? Feel free to use Excel. Show your answers and supporting
work/spreadsheet.
3
4
5
7
+
+
$600
$134
Project A
-$300
-$387
-$193
-$100
$600
$850
-$180
Project B
-$405
$134
$134
$134
$134
$134
$0

14. A company is evaluating a proposal to purchase a new piece of machinery, and the
company spent $5,000 last year studying the possibility of purchasing the machine. The
base price of the machine is $108,000, and shipping and installation costs total $12,500.
For tax depreciation purposes the machine qualifies as a MACRS 3-year asset (with
depreciation rates of 33, 45, 15, and 7 percent). If the machine is purchased, working
capital will have to increase by $5,500. The machine will not increase sales, but it is
expected to reduce labor costs by $44,000 per year. The applicable tax rate is 35
percent, and the applicable risk-adjusted cost of capital is 12 percent. At the end of
three years the machine will be sold for $65,000. Prepare the cash flow spreadsheet
displaying your calculations and your cash flows per year, attach it as part of your
answer, and then answer the following questions:
A. What should you do with the $5,000 spent last year?
B. What is the year zero cash flow?
C. What are the total cash flows for years 1, 2, and 3?
D. Should the company purchase the machine? Why or why not?

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