Question

Calculate the NPV for Project A and accept or reject the project with the cash flows shown below if the appropriate cost of capital is 7%

Project A
Time 0 1 2 3 4 5
Cash Flow -990 350 480 500 630 120

2) Calculate the NPV for project L and recommend whether the company should accept or reject the project. Cost of Capital is 6%

Project L
Time 0 1 2 3 4 5
Cash Flow -         8,600           5,000           5,800           5,800           5,000 -       10,000

3) Calculate the Pay Back for project K and decide if the firm should accept or reject the project. Cost of Capital is 11% and the maximum allowable payback is 4 years

Project K
Time 0 1 2 3 4 5
Cash Flow -       11,000           3,230           4,120           1,530           3,500              990

4) Calculate the Discounted Pay Back for project S and decide if the firm should accept or reject the project. Cost of Capital is 10% and the maximum allowable discounted payback is 3 years

Project S
Time 0 1 2 3 4 5
Cash Flow -       11,000           3,350           4,120           2,280           3,500           1,000

5) Calculate the IRR for project T and decide if the firm should accept or reject the project. Appropriate Cost of Capital is 8%

Project T
Time 0 1 2 3 4 5
Cash Flow -       11,000           3,350           4,120           1,530           3,500           1,000

6) Calculate the MIRR for project I and decide if the firm should accept or reject the project. Appropriate Cost of Capital is 12%. Reinvestment rate is 5%

Project I
Time 0 1 2 3 4
Cash Flow -       11,000           5,330           4,120           1,530           2,030

7) Calculate the PI for project D and decide if the firm should accept or reject the project. Appropriate Cost of Capital is 8%

Project D
Time 0 1 2 3 4 5
Cash Flow -         1,000              330              485              620              289              100

Answer 1

	0	1	2	3	4	5	NPV
A	-990	350	480	500	630	120	$730.68	Accept
L	-8,600	5,000	5,800	5,800	5,000	-10,000	$2,636.64	Accept

NPV can be calculated using NPV function in excel or calculator or manually using the given discount rates.

If NPV > 0, project should be accepted.

							Payback
K	-11,000	3,230	4,120	1,530	3,500	990	3.61	Accept

Payback period is the no. of years it takes to recover the investment. As it is less than 4 years, accept this project.

	0	1	2	3	4	5	D.Payback
S	-11,000	3,350	4,120	2,280	3,500	1,000
DCF S	-11,000	3,045	3,405	1,713	2,391	621	4.72	Reject

Discounted payback is payback using discounted cash flows (DCF). As it is above 4 years, reject the project.

							IRR
T	-11,000	3,350	4,120	1,530	3,500	1,000	8.40%	Accept

IRR can be calculated using IRR function in excel or calculator. As IRR > 8%, accept the project.

						MIRR
I	-11,000	5,330	4,120	1,530	2,030	6.87%	Reject

MIRR can be calculated using MIRR function in excel or manually using formula

							PI
D	-1,000	330	485	620	289	100	2.49	Accept

PI = 1 + NPV / CF0

As PI > 1, Accept the project