Final Exam—Capital Budgeting

Final Exam—Capital Budgeting           Name_______________   Score_________

An investment opportunity costs $25,000 today, but promises to return $10,000 per year for 3 years, and then $20,000 per year for two more years.  What is the payback period?  Show work on this page.

Project A and Project B have a cost of $24,000,000 today.  Project A will have cash flows of $10,000,000 per year for three years, while Project B will have cash flowsof $15,000,000 the first year, $10,000,000 the second year, and $7,000,000 the third year. 

Calculate the NPV and the IRR for Project A using a 12% cost of capital and show your work by using TWO of the following methods:  (1) using the formula, (2) identifying all variables using the calculator’s function keys, (3) using the steps on the calculator to calculate NPV and IRR.  Note it is an annuity since the cash flows are the same.

Calculate the NPV and the IRR for Project B using a 12% cost of capital and show your work by using TWO of the following methods:  (1) using the formula,(2) identifying all variables using the calculator’s function keys, (3) using the steps on thecalculator to calculate NPV and IRR.Note this project has different cash flows.

Should A, B, both A and B, or neither be accepted if the projects are independent.  Circle your choice

Should A, B, both A and B, or neither be accepted if the projects are mutually exclusive.  Circle your choice

Project X and Project Y have a cost of $50,000,000 today.  Project X will have cash flows of $20,000,000 per year for three years, while Project Y will have cash flowsof $18,000,000 the first year, $19,000,000 the second year, and $23,000,000 the third year. 

Calculate the NPV and the IRR for Project X using a 10% cost of capital and show your work by using TWO of the following methods:  (1) using the formula, (2) identifying all variables using the calculator’s function keys, (3) using the steps on the calculator to calculate NPV and IRR.  Note it is an annuity since the cash flows are the same.

Calculate the NPV and the IRR for Project Y using a 10% cost of capital and show your work by using TWO of the following methods:  (1) using the formula, (2) identifying all variables using the calculator’s function keys, (3) using the steps on the calculator to calculate NPV and IRR.  Note this project has different cash flows.

Should X, Y, both X and Y, or neither be accepted if the projects are independent.  Circle your choice

Should X, Y, both X and Y, or neither be accepted if the projects are mutually exclusive.  Circle your choice