Wednesday 7 November 2012

Problem 1: Complete the table, and tell me whether we accept or reject. Period Project A CF0 -100 CF1 50 CF2 40 CF3 40 CF4 15 RRR (Discount) 15% NPV IRR Problem 2: Complete the table, tell me which project you'd select, and why. Period Project A Project B CF0 -100 -100 CF1 50 70 CF2 70 75 CF3 40 10 RRR 10% 10% NPV IRR Problem 3: Find the MIRR Ehrmann Data Systems is considering a project that has the following cash flow and WACC data. What is the project's MIRR? Do we accept or reject, and why? WACC: 10.00% Year 0 1 2 3 Cash flows ($1,000) $450 $450 $450 Problem 4: Nast Inc. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. If the decision is made by choosing the project with the higher MIRR rather than the one with the higher NPV, how much value will be forgone? WACC: 8.75% Year 0 1 2 3 4 CFS ($1,100) $375 $375 $375 $375 CFL ($2,200) $725 $725 $725 $725 Problem 5: Stern Associates is considering a project that has the following cash flow data. Calculate the NPV and MIRR if the RRR is 9%, and provide a recommendation on whether to accept or reject. Year 0 1 2 3 4 5 Cash flows ($1,100) $400 $510 ($320) $530 $340

Problem 1: Complete the table, and tell me whether we accept or reject.


Period Project A





CF0 -100





CF1 50





CF2 40





CF3 40





CF4 15





RRR (Discount) 15%





NPV  





IRR  













Problem 2: Complete the table, tell me which project you'd select, and why.


Period Project A Project B




CF0 -100 -100




CF1 50 70




CF2 70 75




CF3 40 10




RRR 10% 10%




NPV    




IRR    




















Problem 3: Find the MIRR





Ehrmann Data Systems is considering a project that has the following cash flow and WACC data.  What is the project's MIRR?  
Do we accept or reject, and why?




WACC:  10.00%





Year
0 1 2 3

Cash flows ($1,000) $450 $450 $450









Problem 4: 






Nast Inc. is considering Projects S and L, whose cash flows are shown below.  

These projects are mutually exclusive, equally risky, and not repeatable.  

If the decision is made by choosing the project with the higher MIRR rather than the one with the higher NPV, how much value will be forgone?  
WACC:  8.75%





Year
0 1 2 3 4
CFS
($1,100) $375 $375 $375 $375
CFL
($2,200) $725 $725 $725 $725
















Problem 5: 






Stern Associates is considering a project that has the following cash flow data. 

Calculate the NPV and MIRR if the RRR is 9%, and provide a recommendation on whether to accept or reject.
Year
0 1 2 3 4 5
Cash flows
($1,100) $400 $510 ($320) $530 $340


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