3. The potential projects that Baker is considering have the following expected cash flows. Each project has its own unique risk and as such, the beta on each project is given. Using the data from #2 for the risk-free rate and market risk premium, what is the required percentage return for each of the projects? Show the required returns to 2 decimals, that is xxxx%. You will use these rates when analyzing each project in the next part of the assignment, these are the required rates of return for Problems 4-7). (8 pts) #3 Project A Beta Project B 0.9 Project C Project D Req. 1.25 1.3 1.5 return (show work) NOTE: When a firm has projects that differ in risk (beta) than the "average" for the company, then the firm's overall required return (from Problem 2) isn't applicable. Each project needs to provide a return greater than or equal to its unique risk-adjusted required return. THE RATES CALCULATED FOR PROJECTS A -D IN #3 ARE THE REQUIRED RETURNS FOR EACH FOR THE FOLLOWING: Use for Problems 4-7. For each project, calculate the NPV, IRR, profitability index (PI) and the payback period. For each capital budgeting decision tool, indicate if the project should be accepted or rejected, assuming that each project is independent of the others. Important Note: The venture capital folks, when considering payback period, have a firm maximum payback period of four years. This 4-year payback period has no impact on other capital budgeting analysis techniques, each is to be considered on its own. In other words, yes, all cash flows need to be considered for NPV, IRR, and PI. Expected cash flows for the four potential projects that Baker is considering as shown below (each project ends when its cash flows end): Year Project A Project B Project C Project D O -$4,000,000 -$6,500,000 $6,000,000 -$3,500,000 $1,250,000 $1,500,000 $1,250,000 $1,000,000 $2,000,000 $1,500,000 $1,250,000 2 $1,250,000 $1,500,000 3 $1,250,000 $1,500,000 $750,000version - Word Table Tools sign Layout References Mailings Review View Help Table Design Layout Tell me what you want to do period has no impact on other capital budgeting analysis techniques, each is to be considered on its own. In other words, yes, all cash flows need to be considered for NPV, IRR, and PI. Expected cash flows for the four potential projects that Baker is considering as shown below (each project ends when its cash flows end): Year Project A Project B Project C Project D 0 -$4,000,000 -$6,500,000 -$6,000,000 -$3,500,000 1 $1,250,000 $1,500,000 $1,250,000 $1,000,000 2 $1,250,000 $2,000,000 $1,500,000 $1,250,000 3 $1,250,000 $1,500,000 $1,500,000 $750,000 4 $1,250,000 $1,500,000 $1,500,000 $750,000 5 $1,250,000 $1,000,000 $1,500,000 $750,000 6 $500,000 $1,000,000 $250,000 7 $500,000 $1,000,000 $250,000 8 $250,000 MBA702 Summer 2024 AP2 PRACTICAL APPLICATION 2 $250,000 9. $250,000 10 I have provided a suggested template for your final answers. Below the grid is where you should show all your required backup calculations (this means your cash flow register inputs, the interest rate, PI calculation and cumulative cash flows for payback). If you are working this in Excel, feel free to submit your Excel sheet, where the equations in the cells will provide the required backup. Be sure to clearly indicate the required rate of return for each project (you calculated each in Problem 3). Remember that each capital budgeting method should be calculated and analyzed on a stand-alone basis. ccessibility: Investigate SearchMBA702 Summer 2024 AP2 PRACTICAL APPLICATION 2 9 $250,000 10 $250,000 I have provided a suggested template for your final answers. Below the grid is where you should show all your required backup calculations (this means your cash flow register inputs, the interest rate, PI calculation and cumulative cash flows for payback). If you are working this in Excel, feel free to submit your Excel sheet, where the equations in the cells will provide the required backup. Be sure to clearly indicate the required rate of return for each project (you calculated each in Problem 3)4 Remember that each capital budgeting method should be calculated and analyzed on a stand-alone basis. Year Project A Project B Project C Project D Req. Return (use 2 Points decimals xx xx%) 6 4a NPV (to nearest $1) 2,250,000 2 4b NPV accept/reject 4 5a IRR (XX Xx%) 2 5b IRR accept/reject 4 6a PI (show 2 decimals, xxx) 2 6b PI accept/reject 4 7a Payback Period (x.x years) 2 7b Payback accept/reject If you need more room to show your work, just add space in this document or put at the end (but be sure your academic coach can easily find your work for each section). THERE ARE DISCUSSION QUESTIONS ON THE NEXT PAGE (12 PTS)