Question: The Sanders Electric Company is evaluating two projects for possible inclusion in the firmâs capital budget. Project M will require a $37,000 investment while project Oâs investment will be $46,000. After-tax cash inflows are estimated as follows for the two projects: Year Project M Project O 1 $12,000 $10,000 2 12000 10000 3 12000 15000 4 12000 15000 5 15000 a. Determine the payback period for each project. Payback (M) = Payback (O) = b. Calculate the net present value and profitability index for each project based on a 10 percent cost of capital. Which, if either, of the project is acceptable? NPV (M) = PI (M) = NPV (O) = PI (O) = c. Determine the internal rate of return and modified internal rate of return for Projects M and O. IRR (M): IRR (O): MIRR calculation of project M: MIRR calculation of project O:
| Question: | ||||
| The Sanders Electric Company is evaluating two projects for possible inclusion in the firmâs capital budget. Project M will require a $37,000 investment while project Oâs investment will be $46,000. After-tax cash inflows are estimated as follows for the two projects: | ||||
| Year | Project M | Project O | ||
| 1 | $12,000 | $10,000 | ||
| 2 | 12000 | 10000 | ||
| 3 | 12000 | 15000 | ||
| 4 | 12000 | 15000 | ||
| 5 | 15000 | |||
| a. | Determine the payback period for each project. | |||
| Payback (M) = | ||||
| Payback (O) = | ||||
| b. | Calculate the net present value and profitability index for each project based on a 10 percent cost of capital. Which, if either, of the project is acceptable? | |||
| NPV (M) = | ||||
| PI (M) = | ||||
| NPV (O) = | ||||
| PI (O) = | ||||
| c. | Determine the internal rate of return and modified internal rate of return for Projects M and O. | |||
| IRR (M): | ||||
| IRR (O): | ||||
| MIRR calculation of project M: | ||||
| MIRR calculation of project O: | ||||
Related questions
You are a financial analyst for the Waffle Company. The director of capital budgeting has asked you to analyze two proposed capital investments, Projects A and B. Each project has a cost of $50,000, and the cost of capital for each is 10%.
The projects’ expected net cash flows are as follows:
|
|
Expected Net Cash Flows |
|
|
Year |
Project A |
Project B |
|
0 |
($50,000) |
($50,000) |
|
1 |
25,000 |
15,000 |
|
2 |
20,000 |
15,000 |
|
3 |
10,000 |
15,000 |
|
4 |
5,000 |
15,000 |
|
5 |
5,000 |
15,000 |
- Calculate each project’s payback period, net present value (NPV), internal rate of return (IRR), modified internal rate of return (MIRR), and profitability index (PI).
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 projectsâ expected net cash flows are shown in the table below.
Expected Net Cash Flows
| Year | Project X | Project Y |
| 0 | â $10,000 | â $10,000 |
| 1 | 6,500 | 3,500 |
| 2 | 3,000 | 3,500 |
| 3 | 3,000 | 3,500 |
| 4 | 1,000 | 3,500 |
Use the Homework Student Workbook to calculate each projectâs net present value (NPV), internal rate of return (IRR), modified internal rate of return (MIRR), and profitability index (PI).
Which project or projects should be accepted if they are independent?
Which project or projects should be accepted if they are mutually exclusive?
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 projectsâ expected net cash flows are shown in the table below.
Expected Net Cash Flows
| Year | Project X | Project Y |
| 0 | â $10,000 | â $10,000 |
| 1 | 6,500 | 3,500 |
| 2 | 3,000 | 3,500 |
| 3 | 3,000 | 3,500 |
| 4 | 1,000 | 3,500 |
Use the Homework Student Workbook to calculate each projectâs net present value (NPV), internal rate of return (IRR), modified internal rate of return (MIRR), and profitability index (PI).
Which project or projects should be accepted if they are independent?
Which project or projects should be accepted if they are mutually exclusive?
