Question: SHOW ALL WORK FOR FULL CREDIT 1. What is the payba...

SHOW ALL WORK FOR FULL CREDIT

1. What is the payback period of the following project?

Initial Investment: $80,000

Projected life: 8 years

Net cash flows each year: $15,000

2.What is the discounted payback period of the following project, assuming your cost of capital is 7%?

Initial Investment: $80,000

Projected life: 8 years

Net cash flows each year: $15,000

3.Your firm is looking at a new investment opportunity, Project X, with net cash flows as follows:

---- Net Cash Flows ----

Project X

Initial Cost at T-0 (Now) ($10,000)

cash inflow at the end of year 1 5,000

cash inflow at the end of year 2 4,000

cash inflow at the end of year 3 3,000

Calculate project Alpha's Net Present Value (NPV), assuming your firms required rate of return is 9%.

4. What is the Profitability Index of project X in question 3?

5.Consider Project X and another Project, Project Y, with net cash flows as follows:

---- Net Cash Flows ----

Project XProject Y

Initial Cost at T-0 (Now) ($10,000) ($20,000)

cash inflow at the end of year 1 5,000 3,000

cash inflow at the end of year 2 4,000 8,000

cash inflow at the end of year 3 3,000 13,000

a. Construct NPV Profiles for these two projects, assuming your firms required rate of return is 9%.

b. If the two projects were mutually exclusive, which would you accept if your firms cost of capital were 5%? Which would you accept if your firms cost of capital were 10%?

6.Calculate the IRR of the following project:

Year Cash Flow

0 ($30,000)

1 $11,000

2 $12,000

3 $13,000

7. Calculate the Modified Internal Rate of Return (MIRR) of the project in Question 13, assuming your firms cost of capital is 8%.

Answers to numerical problems:

Question 1: Sometime in the 6^thyear

Question 2: Sometime in the 7^thyear

Question 3: $270

Question 4: 1.027

Question 6: 9.4%

Question 7: 8.9%