| Question: |
| The Sanders Electric Company is evaluating two projects for possible inclusion in the firm’s capital budget. Project M will require a $37,000 investment while project O’s investment will be $46,000. After-tax cash inflows are estimated as follows for the two projects:
|
| Year | Project M | Project O |
| 1 | $12,000 | $10,000 |
| 2 | 12000 | 10000 |
| 3 | 12000 | 15000 |
| 4 | 12000 | 15000 |
| 5 | 15000 |
| a. | Determine the payback period for each project. |
| | Payback (M) = |
| | Payback (O) = |
| b. | Calculate the net present value and profitability index for each project based on a 10 percent cost of capital. Which, if either, of the project is acceptable? |
| | NPV (M) = |
| | PI (M) = |
| | NPV (O) = |
| | PI (O) = |
| c. | Determine the internal rate of return and modified internal rate of return for Projects M and O. |
| | IRR (M): |
| | IRR (O): |
| | MIRR calculation of project M: |
| | MIRR calculation of project O: |
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week_five_lab_one_template.xlsx
