1. 2. Calculating Payback [L02] What is the payback period for the following set of cash...

 

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1. 2. Calculating Payback [L02] What is the payback period for the following set of cash flows? + Year Cash Flow 0 -$8,300 1 $2,100 2 $3,000 3 $2,300 4 $1,700 Calculating IRR [L05] A firm evaluates all of its projects by applying the IRR rule. If the required return is 14 percent, should the firm accept the following project? Year Cash Flow 0 -$34,000 1 $15,000 2 $17,000 3 $13,000 3. Calculating NPV [L01] For the cash flows in the previous problem, suppose the firm uses the NPV decision rule. At a required return of 11 percent, should the firm accept this project? What if the required return is 24 percent? 4. NPV versus IRR [L01, 5] Bruin, Inc., has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 -$37,500 -$37,500 1 $17,300 $5,700 2 $16,200 $12,900 3 $13,800 $16,300 4 $7,600 $27,500 a. b. c. What is the IRR for each of these projects? Using the IRR decision rule, which project should the company accept? Is this decision necessarily correct? If the required return is 11 percent, what is the NPV for each of these projects? Which project will the company choose if it applies the NPV decision rule? Over what range of discount rates would the company choose Project A? Project B? At what discount rate would the company be indifferent between these two projects? Explain. 5. MIRR [LO6"] Solo Corp. is evaluating a project with the following cash flows: 1012345 Year Cash Flow -$47,000 $16,900 $20,300 $25,800 $19,600 -$9,500 The company uses an interest rate of 10 percent on all of its projects. Calculate the MIRR of the project using all three methods. 1. 2. Calculating Payback [L02] What is the payback period for the following set of cash flows? + Year Cash Flow 0 -$8,300 1 $2,100 2 $3,000 3 $2,300 4 $1,700 Calculating IRR [L05] A firm evaluates all of its projects by applying the IRR rule. If the required return is 14 percent, should the firm accept the following project? Year Cash Flow 0 -$34,000 1 $15,000 2 $17,000 3 $13,000 3. Calculating NPV [L01] For the cash flows in the previous problem, suppose the firm uses the NPV decision rule. At a required return of 11 percent, should the firm accept this project? What if the required return is 24 percent? 4. NPV versus IRR [L01, 5] Bruin, Inc., has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 -$37,500 -$37,500 1 $17,300 $5,700 2 $16,200 $12,900 3 $13,800 $16,300 4 $7,600 $27,500 a. b. c. What is the IRR for each of these projects? Using the IRR decision rule, which project should the company accept? Is this decision necessarily correct? If the required return is 11 percent, what is the NPV for each of these projects? Which project will the company choose if it applies the NPV decision rule? Over what range of discount rates would the company choose Project A? Project B? At what discount rate would the company be indifferent between these two projects? Explain. 5. MIRR [LO6"] Solo Corp. is evaluating a project with the following cash flows: 1012345 Year Cash Flow -$47,000 $16,900 $20,300 $25,800 $19,600 -$9,500 The company uses an interest rate of 10 percent on all of its projects. Calculate the MIRR of the project using all three methods.