FNM01 PRACTICE SET

Capital Budgeting Process and Decision Criteria

Prepared by: Rosemarie O. Nombrefia, MBA

 PROBLEM #1
A project has an initial cost of P52,125, expected net cash inflows of
P12,000 per year for 8 years, and a cost of capital of 12%.

What is the project’s NPV?

 PROBLEM #2
A project has an initial cost of P52,125, expected net cash inflows of
P12,000 per year for 8 years, and a cost of capital of 12%.

What is the project’s IRR?

 PROBLEM #3
A project has an initial cost of P52,125, expected net cash inflows of
P12,000 per year for 8 years, and a cost of capital of 12%.

What is the project’s PI?

 PROBLEM #4
A project has an initial cost of P52,125, expected net cash inflows of
P12,000 per year for 8 years, and a cost of capital of 12%.

What is the project’s payback period?

 PROBLEM #5
A project has an initial cost of P52,125, expected net cash inflows of
P12,000 per year for 8 years, and a cost of capital of 12%.

What is the project’s discounted payback period?

 PROBLEM #6
Project S has a cost of P10,000 and is expected to produce benefits
(cash flows) of P3,000 per year for 5 years. Project L costs P25,000 and is
expected to produce cash flows of P7,400 per year for 5 years. Calculate
the two projects’ NPVs, IRRs, and PIs, assuming a cost of capital of 12%.

Which project would be selected, assuming they are mutually

exclusive, using each ranking method? Which should actually be selected?
PROBLEM #7
PROBLEM #8
PROBLEM #9