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You are a financial analyst for the Brittle Company. The director of capital budgeting has asked you to analyze two proposed capital investments: Projects X and Y. Each project has a cost of $10,000, and the cost of capital for each is 12%. The projects expected net cash flows are shown in the table below.

Expected Net Cash Flows

Year Project X Project Y

0  $10,000 $10,000

1- 6,500 3,500

2- 3,000 3,500

3- 3,000 3,500

4- 1,000 3,500

a. Use the Homework Student Workbook to calculate each projects net present value (NPV), internal rate of return (IRR), modified internal rate of return (MIRR), and profitability index (PI).

b.Which project or projects should be accepted if they are independent?

c.Which project or projects should be accepted if they are mutually exclusive?

FIN 550 Homework Guidelines and Rubric

This course uses homework problems to demonstrate competence and allow for practice with calculations unique to finance. Complete all your calculations in
the Homework Student Workbook. Then summarize your findings and discuss the implications of the findings for the business or potential business transaction.
Follow the instructions for each question in Modules Three and Five and complete the assigned work.

Guidelines for Submission: Each homework assignment must be submitted as a 1-page Microsoft Word document with double spacing, 12-point Times New
Roman font, and one-inch margins. Any sources should be cited according to APA style. In addition, your Homework Student Workbook must be submitted to
demonstrate all calculations.

Critical Elements Proficient (100%) Needs Improvement (70%) Not Evident (0%) Value

Accuracy of
Calculations

Includes detailed calculations, including
demonstration of each step taken to
accurately complete the problem

Includes calculations that are inaccurate
and/or does not include all of the steps
needed

Includes calculations that are inaccurate
and does not provide an explanation of
calculations

45

Analysis: Implications Includes an explanation of the
implications of the findings for the
business and/or potential business
transaction

Explains the implications of the findings,
but there are inaccuracies or explanation
is insufficient

Does not include an explanation of the
findings

45

Articulation of
Response

Submission has no major errors related to
citations, grammar, spelling, syntax, or
organization

Submission has major errors related to
citations, grammar, spelling, syntax, or
organization that negatively impact
readability and articulation of main ideas

Submission has critical errors related to
citations, grammar, spelling, syntax, or
organization that prevent understanding
of ideas

10

Earned Total 100%

http://snhu-media.snhu.edu/files/course_repository/graduate/fin/fin550/fin550_homework_student_workbook.xlsx

2

>

3 – 1

Question 1

Calculate the value of the stock today:

1.15 =

x =

x =

+ = $

3:

=

rs-g

=

=

= $

$ + $ = $

+ $ + $ = $

$ + $ = $

Year

+

=

1

5.24%

+

≈

2 + ≈
3 + ≈

Assignment 3-1, Question 1

1

a.

1. Calculate the PV of the dividends paid during the supernatural growth period:

$

%

$

D1

=

1.15

x

1.3225

D2=

D3=

PV of Dividends =

+

2. Find the PV of Turbo’s stock price at the end of

Year

P3^ =

____D4____

__ _D3(1+g)______

rs-g

PV of P3^ =

3. Sum the two components to find the value of the stock today:

Value of current stock (P0) =

1b. Calculate P1^ and P2^.

P1^ =

$

P2^ =

1c. Calculate the dividend yields and capital gains yield for Years 1, 2, and 3.

Dividend Yield

Capital Gains Yield

Total Return

$1.3225/$25.23

≈

($26.93 – $25.23) / $25.23 ≈ 6.74%

12%

3-1 Question 2

=

Assignment 3-1, Question 2
rps	%

3-1 Question 3

= = $

+

= $ + $ = $

–

= $ – $ = $
= $ ÷ $ = $

Assignment 3-1, Question 3
3a. Calculate McCaffrey’s value of operations.
Vop =	FCF(1+g)
WACC – g
3b. Calculate the company’s total value.
Total Value =	Value of Operations	Value of nonoperating assets
3c. Calculate the estimated value of common equity.
Value of equity =	Total value	Value of debt
3d. Calculate the estimated per-share stock price.
Price per share =	Value of Equity						÷	Number of Shares

5-2 Question 1

a.

=

+ $ + $ + $ + $ = $

=

-$10,000 + $ + $ + $ + $ = $

= %

= %

=

+ $ + $ +

= $

= $ + $ + $ +

= $

= %

= %

PVx =

+

= $ + $10,000 = $
PVy =

+

= $ + $ = $

= PVx ÷ Cost of X

= $ ÷ $ =

= PVy ÷ Cost of Y

= $ ÷ $ =

Assignment 5-2, Question 1
Net Present Value (NPV):
N		PVx		–	$10,000
N		PVy
Internal Rate of Return (IRR):
To solve for each project’s IRR, find the discount rates that equate each NPV to zero:
IRRx
IRRy
Modified Internal Rate of Return (MIRR):
To obtain each project’s MIRR, begin by finding each project’s terminal value (TV) of cash inflows:
TVx	$6,500 (1.12)^3	$1,000
TVy	$3,500
Now, each project’s MIRR is the discount rate that equates the PV of the TV to each project’s cost, $10,000:
MIRRx
MIRRy
Profitability Index (PI):
To obtain each project’s PI, divide its present value of future cash flows by its initial cost. The PV of future cash flows can be found from the NPV calculated earlier:
NPVx		Cost of X
NPVy		Cost of Y
PIx
PIy