EBW1063 Managerial Finance

Capital Budgeting

1 Tapley Dental Associates is considering a project that has the following cash flow and
WACC data. What is the project's NPV? Should the project's accepted or rejected base on
the projected NPV? Why?
WACC = 10%
Year: 0 1 2 3 4 5
Cash flows: -$1,000 $300 $300 $300 $300 $300

2 Blanchford Enterprises is considering a project that has the following cash flow data. What
is the project's IRR? WACC is 15%. Should the project's accepted or rejected base on the
projected IRR? Why?
Year: 0 1 2 3
Cash flows: -$1,000 $450 $450 $450

3 Tapley Dental Associates is considering a project that has the following cash flow data.
What is the project's payback?
Year: 0 1 2 3 4 5
Cash flows: -$1,000 $300 $310 $320 $330 $340

4 Richards Enterprises is considering a project that has the following cash flow and WACC
data. What is the project's NPV? Should the project's accepted or rejected base on the
projected NPV? Why?
WACC = 10%
Year: 0 1 2 3 4 5
Cash flows: -$1,000 $400 $395 $390 $385 $380

5 Reynolds Bikes is considering a project that has the following cash flow and WACC data.
What is the project's discounted payback?
WACC = 10%
Year: 0 1 2 3 4
Cash flows: -$1,000 $525 $485 $445 $405

6 Edison Electric Systems is considering a project that has the following cash flow and WACC
data. What is the project's MIRR? Should the project's accepted or rejected base on the
projected MIRR? Why?
WACC = 10%
Year: 0 1 2 3
Cash flows: -$1,000 $350 $370 $390
7 Davis Corporation has an investment policy that requires acceptable projects to recover all
costs within 3 years. The corporation uses the discounted payback method to assess potential
projects and uses a WACC of 10%. The cash flows for two independent projects are shown
below:
Project A Project B
Year Cash Flow Cash Flow
0 -$100,000 -$80,000
1 40,000 50,000
2 40,000 20,000
3 40,000 30,000
4 30,000 0
In which investment project(s) should the company invest?