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Problem 1Suppose a company is considering two independent

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Problem 1

Suppose a company is considering two independent projects, Project A and Project B. The cash outlay for Project A is $14,000. The cash outlay for Project B is $20,000. The company’s cost of capital is 12%. The following table shows the after-tax cash flows. For each project, compute the NPV, the IRR, the MIRR, and indicate the accept/reject decision.

Year

Project A

Project B

1

$4800

$6700

2

$4800

$6700

3

$4800

$6700

4

$4800

$6700

Problem 2

What is the internal rate of return for a project that has a net investment of $60,000 and the following net cash flows: Year 1 = $15,000; Year 2 = $20,000; Year 3 = $25,000; Year 4 = $30,000?

Problem 3

A CFO is considering a project that has the following cash flow and WACC data. What is the project's MIRR? Note that a project's projected MIRR can be less than the WACC (and even negative), in which case it will be rejected. The firm’s WACC is 10%.

Project A

YearCash Flow

0 -$800

1 350

2 350

3 350

Problem 4

A company is faced with two independent investment opportunities. The corporation has an investment policy which requires acceptable projects to recover all costs within 3 years. The corporation uses the discounted payback method to assess potential projects and utilizes a discount rate of 10 percent. The cash flows for the two projects are:

Project A Project B

YearCash Flow Cash Flow

0 -$100,000 -$80,000

1 40,000 50,000

2 40,000 20,000

3 40,000 30,000

4 30,000 0

Which is the discounted payback for each project?

Problem 5

What is the internal rate of return for a project that has a net investment of $75,000 and the following net cash flows: Year 1 = $15,000; Year 2 = $20,000; Year 3 = $25,000; Year 4 = $30,000?