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Net Present Value (NPV): 3000 NPVH 6500 3000 1000 -$10,000 966.01 + + + 1.12 1.40 1.57 1.25 3500 3500 3500 NPVy 3500 -$10,000 630.72 1.57 1.12 1.25 1.40 Internal Rate of Return (IRR): o solve for each project's IRR, find the discount rates that equate each NPV to zer IRRH 18% IRRy 15% Modified Internal Rate of Return (MIRR): To obtain each project's MIRR, begin by finding each project's terminal value (TV) of cash in TV 3763.2 $1,000 9132.032 3360 17,255.23 4917.248 $3,500 TVy 4390.4 3920 16,727.65 + + Now, each project's MIRR is the discount rate that equates the PV of the TV to each project's cost, $10,0 MIRR 14.61% MIRRY 13.73% Profitability Index (PI): To obtain each project's PI, divide its present value of future cash flows by its initial cost. The PV of future cash flows can be found from the NPV cal PVH NPVx Cost of X + $ 10,966 $ 966.00 $ 10,000 + Cost of Y NPVY PVy $ 631.00 $ 10,000 $ 10,631 + Cost of X Plx PVx $10,966 10000 1.0966 Cost of Y Ply PVy $ 10,631 10000 1.0631

Net Present Value (NPV): 3000 NPVH 6500 3000 1000 -$10,000 966.01 + + + 1.12 1.40 1.57 1.25 3500 3500 3500 NPVy 3500 -$10,000 630.72 1.57 1.12 1.25 1.40 Internal Rate of Return (IRR): o solve for each project's IRR, find the discount rates that equate each NPV to zer IRRH 18% IRRy 15% Modified Internal Rate of Return (MIRR): To obtain each project's MIRR, begin by finding each project's terminal value (TV) of cash in TV 3763.2 $1,000 9132.032 3360 17,255.23 4917.248 $3,500 TVy 4390.4 3920 16,727.65 + + Now, each project's MIRR is the discount rate that equates the PV of the TV to each project's cost, $10,0 MIRR 14.61% MIRRY 13.73% Profitability Index (PI): To obtain each project's PI, divide its present value of future cash flows by its initial cost. The PV of future cash flows can be found from the NPV cal PVH NPVx Cost of X + $ 10,966 $ 966.00 $ 10,000 + Cost of Y NPVY PVy $ 631.00 $ 10,000 $ 10,631 + Cost of X Plx PVx $10,966 10000 1.0966 Cost of Y Ply PVy $ 10,631 10000 1.0631

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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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 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

 

  1. Which project or projects should be accepted if they are independent?
  2. Which project or projects should be accepted if they are mutually exclusive?
Net Present Value (NPV): 3000 NPVH 6500 3000 1000 -$10,000 966.01 + + + 1.12 1.40 1.57 1.25 3500 3500 3500 NPVy 3500 -$10,000 630.72 1.57 1.12 1.25 1.40 Internal Rate of Return (IRR): o solve for each project's IRR, find the discount rates that equate each NPV to zer IRRH 18% IRRy 15% Modified Internal Rate of Return (MIRR): To obtain each project's MIRR, begin by finding each project's terminal value (TV) of cash in TV 3763.2 $1,000 9132.032 3360 17,255.23 4917.248 $3,500 TVy 4390.4 3920 16,727.65 + +
Transcribed Image Text:Net Present Value (NPV): 3000 NPVH 6500 3000 1000 -$10,000 966.01 + + + 1.12 1.40 1.57 1.25 3500 3500 3500 NPVy 3500 -$10,000 630.72 1.57 1.12 1.25 1.40 Internal Rate of Return (IRR): o solve for each project's IRR, find the discount rates that equate each NPV to zer IRRH 18% IRRy 15% Modified Internal Rate of Return (MIRR): To obtain each project's MIRR, begin by finding each project's terminal value (TV) of cash in TV 3763.2 $1,000 9132.032 3360 17,255.23 4917.248 $3,500 TVy 4390.4 3920 16,727.65 + +
Now, each project's MIRR is the discount rate that equates the PV of the TV to each project's cost, $10,0 MIRR 14.61% MIRRY 13.73% Profitability Index (PI): To obtain each project's PI, divide its present value of future cash flows by its initial cost. The PV of future cash flows can be found from the NPV cal PVH NPVx Cost of X + $ 10,966 $ 966.00 $ 10,000 + Cost of Y NPVY PVy $ 631.00 $ 10,000 $ 10,631 + Cost of X Plx PVx $10,966 10000 1.0966 Cost of Y Ply PVy $ 10,631 10000 1.0631
Transcribed Image Text:Now, each project's MIRR is the discount rate that equates the PV of the TV to each project's cost, $10,0 MIRR 14.61% MIRRY 13.73% Profitability Index (PI): To obtain each project's PI, divide its present value of future cash flows by its initial cost. The PV of future cash flows can be found from the NPV cal PVH NPVx Cost of X + $ 10,966 $ 966.00 $ 10,000 + Cost of Y NPVY PVy $ 631.00 $ 10,000 $ 10,631 + Cost of X Plx PVx $10,966 10000 1.0966 Cost of Y Ply PVy $ 10,631 10000 1.0631
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