the Discounted Payback Period

FINANCE 3000 Spring 2017

 

Capital Budgeting Assignment :

 

 

  1. Consider the following: Project “K” Costs $52,125, it’s expected cash flows are $12,000 per year for 8 years and it’s WACC is 12%.

 

  1. What is the NPV for Project K?
  2. What is the IRR for Project K?
  3. What is the Payback Period for Project K?
  4. What is the Discounted Payback Period for Project K?

     

 

  1. Your division is considering two projects with the following cash flows:

     

 

Year 0 1 2 3
Project A

Project B

 −$25

−$20

 $5

$10

 $10

$9

 $17

$6

 

  1. What are the projects NPV’s assuming WACCS of 5? 10%? 15%?
  2. What are the Projects IRR? Does it change if you change the WACC? Explain why or why not.

     

     

 

  1. A firm with a WACC of 10% is considering the following mutually exclusive projects. Which project would you recommend and why?

     

 

Year 0 1 2 3 4 5
Project A

Project B 9.43%

 −$400

−$600

 $55

$300

 $55

$300

 $55

$50

 $225

$50

 $225

$49

 

 

 

 

 

 

 

 

 

 

 

Chapter 11 Page 396

 

Questions: (NOT Problems)

 

11-3

 

11-5

 

11-8

 

11-9

 

 

 

Problems: Page 398

 

11-17

 

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