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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