Project (Capital Budgeting Techniques) Use an Excel spreadsheet to perform the calculations. Be sure to show all the necessary steps involved in the calculation. Attach both the Excel spreadsheet and the Word document for this project. Your division is considering two investment projects, each of which requires an up-front expenditure of $30 million. You estimate that the cost of capital is 8 % and that the investments will produce the following after-tax cash flows (in millions of dollars): Year Project A Project B 1 5 25 2 15 15 3 20 10 4 25 8 What is the payback period? What are its advantages and disadvantages? What is the payback period for each project? Calculate the NPV and IRR of the two projects. If the two projects are independent and the cost of capital is 8 %, which project or projects should the firm undertake? Briefly discuss merits and demerits of NPV rule for decision making. If the two projects are mutually exclusive and the cost of capital is 8%, which project should the firm choose? If the two projects are mutually exclusive and the cost of capital is 10%, which project should the firm select? What is the crossover rate? If the cost of capital is 10%, what is the modified IRR (MIRR) of each project?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 7PA: There are two projects under consideration by the Rainbow factory. Each of the projects will require...

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Project (Capital Budgeting Techniques) Use an Excel spreadsheet to perform the calculations. Be sure to show all the necessary steps involved in the calculation. Attach both the Excel spreadsheet and the Word document for this project. Your division is considering two investment projects, each of which requires an up-front expenditure of $30 million. You estimate that the cost of capital is 8 % and that the investments will produce the following after-tax cash flows (in millions of dollars): Year Project A Project B 1 5 25 2 15 15 3 20 10 4 25 8 What is the payback period? What are its advantages and disadvantages? What is the payback period for each project? Calculate the NPV and IRR of the two projects. If the two projects are independent and the cost of capital is 8 %, which project or projects should the firm undertake? Briefly discuss merits and demerits of NPV rule for decision making. If the two projects are mutually exclusive and the cost of capital is 8%, which project should the firm choose? If the two projects are mutually exclusive and the cost of capital is 10%, which project should the firm select? What is the crossover rate? If the cost of capital is 10%, what is the modified IRR (MIRR) of each project?

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