project’s MIRR at the cost of capital , business and finance homework help
finance homework
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FIN 534
–
Homework
Set #4
© 201
5
Strayer Uni
versity. All Rights Reserved.
This document contains Strayer University Confidential and Proprietary information
and may not be copied, further distributed, or otherwise disclosed in whole or in part, without the expressed written permiss
ion of
Strayer University.
FIN 534
Homework
Set
#4
1156 (5
-
19
-
2015)
Page
1
of
2
Directions: Answer the following questions on a separate document. Explain how you reached the answer
or show your work if a mathematical calculation is needed, or both. Submit your assignment using the
assignment link in the course shell.
T
his homework as
signment
is worth 100 points
.
Use the following infor
mation for Questions 1 through 3
:
Assume you are presented with the following mutually exclusive investments whose expected net cash
flows are as follows:
EXPECTED NET CASH FLOWS:
Year
Project A
Projec
t B
0
−$400
−$650
1
−528
210
2
−219
210
3
−150
210
4
1,100
210
5
820
210
6
990
210
7
−325
210
1.
(a)
What is each project’s IRR?
(b)
If each project’s cost of capital were 10%, which project, if either, should be selected? If the
cost of capital we
re 17%, what would be the proper choice?
2.
(a)
What is each project’s MIRR at the cost of capital of 10%? At 17%? (Hint: Consider Period 7
as the end of Project B’s life.)
3.
What is the crossover rate, and what is its significance?
FIN 534
–
Homework
Set #4
© 201
5
Strayer Uni
versity. All Rights Reserved.
This document contains Strayer University Confidential and Proprietary information
and may not be copied, further distributed, or otherwise disclosed in whole or in part, without the expressed written permiss
ion of
Strayer University.
FIN 534
Homework
Set
#4
1156 (5
-
19
-
2015)
Page
2
of
2
Use the following inf
orm
ation for Question 4
:
The staff of Porter Manufacturing has estimated the following net after
-
tax cash flows and probabilities for
a new manufacturing process:
Line 0 gives the cost of the process, Lines 1 through 5 give operating cash flows, and Line 5* c
ontains the
estimated salvage values. Porter’s cost of capital for an average
-
risk project is 10%.
Net After
-
Tax Cash Flows
Year
P = 0.2
P = 0.6
P = 0.2
0
−$100,000
−$100,000
−$100,000
1
20,000
30,000
40,000
2
20,000
30,000
40,000
3
20,000
30,000
40,000
4
20,000
30,000
40,000
5
20,000
30,000
40,000
5*
0
20,000
30,000
4.
Assume that the project has average risk. Find the project’s expected NPV. (Hint: Use expected
values for the net cash flow in each year.)
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Answers
Status NEW
Posted 13 Aug 2017 09:08 AM
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