Resources: Microsoft® Excel®, Capital Budgeting Decision Models Template
Calculate the following problems using Microsoft® Excel®:
- Calculate the NPV for each project and determine which project should be accepted.
| |
Project A |
Project B |
Project C |
Project D |
| Inital Outlay |
(105,000.000) |
(99,000.00) |
(110,000.00) |
(85,000.00) |
| Inflow year 1 |
53,000.00 |
51,000.00 |
25,000.00 |
45,000.00 |
| Inflow year 2 |
50,000.00 |
47,000.00 |
55,000.00 |
50,000.00 |
| Inflow year 3 |
48,000.00 |
41,000.00 |
15,000.00 |
30,000.00 |
| Inflow year 4 |
30,000.00 |
52,000.00 |
21,000.00 |
62,000.00 |
| Inflow year 5 |
35,000.00 |
40,000.00 |
35,000.00 |
68,000.00 |
| Rate |
7% |
10% |
13% |
18% |
- Your company is considering three independent projects. Given the following cash flow information, calculate the payback period for each. If your company requires a three-year payback before an investment can be accepted, which project(s) would be accepted?
| |
Project D |
Project E |
Project F |
| Cost |
205,000.00 |
179,000.00 |
110,000.00 |
| Inflow year 1 |
53,000.00 |
51,000.00 |
25,000.00 |
| Inflow year 2 |
50,000.00 |
87,000.00 |
55,000.00 |
| Inflow year 3 |
48,000.00 |
41,000.00 |
21,000.00 |
| Inflow year 4 |
30,000.00 |
52,000.00 |
9,000.00 |
| Inflow year 5 |
24,000.00 |
40,000.00 |
35,000.00 |
- Using market value and book value (separately), find the adjusted WACC, using 30% tax rate.
| Component |
Balance Sheet Value |
Market Value |
Cost of Capital |
| Debt |
5,000,000.00 |
6,850,000.00 |
8% |
| Preferred Stock |
4,000,000.00 |
2,200,00.00 |
10% |
| Common Stock |
2,000,000.00 |
5,600,000.00 |
13% |
