Question

Capital Budgeting

BioMed Engineering is considering two mutually exclusive investments. The projects' expected net cash flows are as follows:                                                                                                      

                                                                                                            

                        Expected Net Cash Flows                                                                                   

            Time     Project A          Project B                                                                       

            0          ($405)                ($705)                                                               

            1          ($285)              $200                                                                 

            2          ($205)              $205                                                                 

            3          ($105)              $210                                                                 

            4          $605                 $215                                                                 

            5          $650                 $220                                                                 

            6          $925                 $225                                                                 

            7          ($200)              $230                                                                 

In your report, identify which project would be selected (assuming they are mutually exclusive) for each investment criterion. Note that cash outflows (costs) are given in parenthesis. Employ the Excel file to answer the following questions.

Part 2: Internal Rate of Return

E. Use the Excel IRR function to calculate the IRR for each project (7 points)

F. Use the Excel MIRR function to calculate the MIRR for each project at a 12% cost of capital. Note to use the cost of capital as both the finance rate and the reinvestment rate. (7 points)

Part 2:

E) IRR

IRR A =
IRR B =

F) MIRR

Cost of capital =	12%
MIRR A =
MIRR B =

Answer 1