Your division is considering two investment projects, each of which requires an up-front expenditure of $25 million. You estimate that the cost of capital is 10 percent and that the investments will produce the following after-tax cash flows (in millions of dollars): Year Project A Project B 1 5 20 2 10 10 3 15 8 4 20 6 What is the regular payback period for each of the projects? What is the discounted payback period for each of the projects? What is the accounting rate of return for each of the projects? If the cost of capital is 11 percent, what is the modified IRR (MIRR) of each project?
Your division is considering two investment projects, each of which requires an up-front expenditure of $25 million. You estimate that the cost of capital is 10 percent and that the investments will produce the following after-tax cash flows (in millions of dollars): Year Project A Project B 1 5 20 2 10 10 3 15 8 4 20 6 What is the regular payback period for each of the projects? What is the discounted payback period for each of the projects? What is the accounting rate of return for each of the projects? If the cost of capital is 11 percent, what is the modified IRR (MIRR) of each project?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Your division is considering two investment projects, each of which requires an up-front expenditure of $25 million. You estimate that the cost of capital is 10 percent and that the investments will produce the following after-tax cash flows (in millions of dollars):
Year |
Project A |
Project B |
1 |
5 |
20 |
2 |
10 |
10 |
3 |
15 |
8 |
4 |
20 |
6 |
- What is the regular payback period for each of the projects?
- What is the discounted payback period for each of the projects?
- What is the accounting
rate of return for each of the projects? - If the cost of capital is 11 percent, what is the modified
IRR (MIRR) of each project?
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