FINANCIAL ACCOUNTING ASSIGNMENT

Chapter 12 – The Basics of Capital Budgeting

DIVA TERTIA ALMIRA – NIU 470320

12 - 1

WACC 12%

Year CF
0 $ -52,125
1 $ 12,000
2 $ 12,000
3 $ 12,000
4 $ 12,000
5 $ 12,000
6 $ 12,000
7 $ 12,000
8 $ 12,000

NPV $ 7,487

12 - 2

IRR 16%

12 - 3

MIRR 14%

12 - 4

Year CF Cumulative
0 $ -52,125 $ -52,125
1 $ 12,000 $ -40,125
2 $ 12,000 $ -28,125
3 $ 12,000 $ -16,125
4 $ 12,000 $ -4,125
5 $ 12,000 $ 7,875
6 $ 12,000 $ 19,875
7 $ 12,000 $ 31,875
8 $ 12,000 $ 43,875

Payback 4.34

12 - 5

Year CF Discounted Cumulative

 0 $ -52,125 $ -52,125.00 $ -52,125
1 $ 12,000 $ 10,714.29 $ -41,411
2 $ 12,000 $ 9,566.33 $ -31,844
3 $ 12,000 $ 8,541.36 $ -23,303
4 $ 12,000 $ 7,626.22 $ -15,677
5 $ 12,000 $ 6,809.12 $ -8,868
6 $ 12,000 $ 6,079.57 $ -2,788
7 $ 12,000 $ 5,428.19 $ 2,640
8 $ 12,000 $ 4,846.60 $ 7,487

Discounted Payback 6.51

12 - 6

Year Project A Project B

0 $ -25 $ -20
1 $ 5 $ 10
2 $ 10 $ 9
3 $ 17 $ 6

WACC 1 5%
WACC 2 10%
WACC 3 15%

a)
PROJECT A

NPV (5%) = $ 3.52 Million Accept

NPV (10%) = $ 0.58 Million
NPV (15%) = $ -1.91 Million Don't Accept Both

PROJECT B

NPV (5%) = $ 2.87 Million

NPV (10%) = $ 1.04 Million Accept
NPV (15%) = $ -0.55 Million

b)
PROJECT A

IRR 11%
PROJECT B

IRR 13%

d)
WACC (5%) -> Accept Project A
WACC (10%) -> Accept Project B
WACC (15%) -> Reject Both