Finance Homework

Assignment 7 – Capital Budgeting Part 1 – T/Th class

· Submit using Assignment tab in eLearning by uploading your completed excel file.

· Your excel file has to be named to reflect your name and the assignment number (for example I may name my file: elashmawiamalA7)

· You are allowed only one submission, so please make sure it is the correct one.

You are considering the following three projects. A & B are mutually exclusive while C is independent.

Following are their expected cash flows

year	project A	Project B	Project C
0	-60,000.00	-40,000.00	-20,000.00
1	0	40,000.00	35,000.00
2	82,000.00	40,000.00	30,000.00
3	60,000.00	20,000.00	2,000.00
4	20,000.00	10,000.00	-40,000.00

Assuming no capitol rationing a required rate of return (cost of capital) of 11% for all three projects.

1) Calculate NPV for each project.

2) Calculate IRR(s) for each project.

3) Calculate PI for each project.

4) Using cost of capital, as a financing and reinvestment rate, calculate MIRR for each project.

5) If A&B profiles cross, calculate the exact crossover point between project A & B.

6) Which of the three projects, if any, should be accepted and why?

Please highlight and label each of your answers on the spread sheet.