Question 5

A project has an initial cost of $40,000, expected net cash inflows of $9,000 per year for 7 years, and a cost of capital of 11%. What is the project’s NPV? (Hint: Begin by constructing the timeline) 10-2 – IRR Refer to problem 10-1. What is the project’s IRR? 10-3 – MIRR Refer to problem 10-1. What is the project’s MIRR? 10-4 – Profitability Index Refer to problem 10-1. What is the project’s PI? 10-5 – Payback Refer to problem 10-1. What is the project payback period? 10-6 – Discounted payback Refer to problem 10-1. What is the project discounted payback period? 10-7 – NPV Your division is considering two investment projects, each of which requires an up-front expenditure of $15 million. You estimate that the investments will produce the following net cash flows: YEAR PROJECT A PROJECT B 1 $ 5,000,000 $20,000,000 2 10,000,000 10,000,000 3 20,000,000 6,000,000 A. What are the two projects’ net present values, assuming the cost of capital is: a) 5%? b) 10%? c) 15%? B. What are the two project’s IRRs at the same cost of capital?