Suppose the capital budget was $100,000. What is the NPV of the best project(s)? WACC=10.00% Fixed Budget =$250,000ProjectInitial Investment PV of Inflows NPVIRRPI-$80,000-$70,000$100,000$112,000$20,000$42,000A12.00%1.25B20.00%1,60-$100,000-$40,000$145,000$36,000$79,000$45,000-$4,00016.00%1.458.00%0.90-$60,000-$110,000$19,000$16,50015.00%1.32F$126,50011.00%1.15Ranking by NPVInvestment NPV$100,000ProjectInitial Investment PV of Inflows NPVIRRPIC-$100,000$145,000$45,00016.00%1.45$45,000-$70,000-$80,000-$60,000$42,000$20,000$87,000$107,000$112,000$170,000$250,00020.00%1.60A$100,00012.00%1.25$79,000$19,00015.00%1.32-$110,000-$40,000F$126,500$16,50011.00%1.15$36,000-$4,0008.00%0.90Ranking by IRR or PIProjectInitial Investment PV of Inflows NPVIRRPIInvestment NPV$42,000$70,000$170,000$230,000-$70,000-$100,000-$60,000-$80,000-$110,000-$40,000$42,000$87,000$106,000$112,00020.00%1.60$145,000$79,000$45,000$19,00016.00%1.45E15.00%1.32$100,000$20,00012.00%1.25$126,500$36,000$16,50011.00%1.15-$4,0008.00%0.90

The net present value is a discounted method of capital budgeting. It includes the present values of…

WACC= 10.00% Fixed Budget = $250,000 Project Initial Investment PV of Inflows NPV IRR PI A -$80,000 $100,000 $20,000 12.00% 1.25 $112,000 $145,000 $36,000 $42,000 $45,000 -$4,000 1.60 -$70,000 -$100,000 B 20.00% 16.00% 1.45 -$40,000 -$60,000 -$110,000 8.00% 0.90 E $79,000 $19,000 15.00% 1.32 F $126,500 $16,500 11.00% 1.15 Ranking by NPV Project Initial Investment PV of Inflows NPV IRR PI Investment NPV -$100,000 -$70,000 -$80,000 $145,000 $45,000 $42,000 $20,000 $100,000 $45,000 $87,000 16.00% 1.45 $112,000 $100,000 20.00% 1.60 $170,000 A 12.00% 1.25 $250,000 $107,000 -$60,000 -$110,000 -$40,000 $79,000 $126,500 $36,000 E $19,000 15.00% 1.32 $16,500 -$4,000 F 11.00% 1.15 D 8.00% 0.90 Ranking by IRR or PI Project Initial Investment PV of Inflows NPV IRR PI Investment NP -$70,000 -$100,000 -$60,000 $112,000 $145,000 $42,000 $45,000 $19,000 $70,000 $42,000 $87,000 $106,000 B 20.00% 1.60 $170,000 $230,000 16.00% 1.45 $79,000 $100,000 $126,500 E 15.00% 1.32 -$80,000 -$110,000 $20,000 $16,500 -$4,000 A 12.00% 1.25 11.00% 1.15 D -$40,000 $36,000 8.00% 0.90

WACC= 10.00% Fixed Budget = $250,000 Project Initial Investment PV of Inflows NPV IRR PI A -$80,000 $100,000 $20,000 12.00% 1.25 $112,000 $145,000 $36,000 $42,000 $45,000 -$4,000 1.60 -$70,000 -$100,000 B 20.00% 16.00% 1.45 -$40,000 -$60,000 -$110,000 8.00% 0.90 E $79,000 $19,000 15.00% 1.32 F $126,500 $16,500 11.00% 1.15 Ranking by NPV Project Initial Investment PV of Inflows NPV IRR PI Investment NPV -$100,000 -$70,000 -$80,000 $145,000 $45,000 $42,000 $20,000 $100,000 $45,000 $87,000 16.00% 1.45 $112,000 $100,000 20.00% 1.60 $170,000 A 12.00% 1.25 $250,000 $107,000 -$60,000 -$110,000 -$40,000 $79,000 $126,500 $36,000 E $19,000 15.00% 1.32 $16,500 -$4,000 F 11.00% 1.15 D 8.00% 0.90 Ranking by IRR or PI Project Initial Investment PV of Inflows NPV IRR PI Investment NP -$70,000 -$100,000 -$60,000 $112,000 $145,000 $42,000 $45,000 $19,000 $70,000 $42,000 $87,000 $106,000 B 20.00% 1.60 $170,000 $230,000 16.00% 1.45 $79,000 $100,000 $126,500 E 15.00% 1.32 -$80,000 -$110,000 $20,000 $16,500 -$4,000 A 12.00% 1.25 11.00% 1.15 D -$40,000 $36,000 8.00% 0.90

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter9: Capital Budgeting Techniques

Section: Chapter Questions

Problem 9PROB

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