Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 13P
Related questions
Question
Assume you are evaluating two mutually exclusive projects, the cash flows of which appear below and that your company uses a cost of capital of 13% to evaluate projects such as these.
Time |
Project A Cash Flows |
Project B Cash Flows |
0 |
-$46,800 |
-$63,600 |
1 |
-21,600 |
20,400 |
2 |
43,200 |
20,400 |
3 |
43,200 |
20,400 |
4 |
43,200 |
20,400 |
5 |
-28,800 |
20,400 |
- Calculate the payback period and discounted payback period for projects A & B.
- Calculate the
IRR and MIRR of projects A & B. Assume a reinvestment rate of 13% for the calculation of MIRR. - Sketch the
NPV profile for projects A & B. - Determine the crossover point for these projects’ NPV profiles.
- Assuming a cost of capital of 14%, which of these projects should be accepted?
- Under what conditions on the cost of capital should project B be preferred to project A?
- If Project A and Project B are independent, which project should be undertaken?
PLEASE ANSWER THE ONE IN BOLD (7)
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