Solve the following problems. Create appropriate formulas using the supplied values in the corresponding cells so Excel can calculate the answer. Example problems can be found on the “Capital Budgeting Example” tab below.

- Compute the NPV statistic for Project Y. Explain whether or not the firm should accept or reject the project with the cash flows shown in the chart below if the appropriate cost of capital is 10 percent.

Year Cash Flow

0 -$8,000

1 $3,350

2 $4,180

3 $1,520

4 $300

NPV= [NPV Calc. here]

[Brief Explanation]

- Compute the payback period statistic for Project X and recommend whether the firm should accept or reject the project with the cash flows shown in the chart if the maximum allowable payback is four years.

Year Cash Flow

0 -$1,450

1 $250

2 $380

3 $620

4 $1,000

5 $100

Payback period = [Answer here] - Two projects being considered are mutually exclusive and have the following projected cash flows: (Compute both NPV and IRR). The cost of capital is 10%.

Year Cash Flow A Cash Flow B

0 -$50,000 -$50,000

1 $15,625 $0

2 $15,625 $0

3 $15,625 $0

4 $15,625 $0

5 $15,625 $99,500

NPV = [Answer here] [Answer here]

IRR = [Answer here] [Answer here]

- Los Angeles Lumber Company is considering a project with a cost of $1,000 initially, and inflows of $300 at the end of years 1-5. LALCâs cost of capital is 12 percent. What is the projectâs IRR and NPV? IRR NPV
- A Project has a cost of $65,000 and it’s expected cash inflows are $12,000 per year for 9 years and the cost of capital is 10%. What is the project’s IRR and MIRR? IRR MIRR
- Explain which capital budgeting method is better, NPV, IRR or MIRR. [Answer here]

Sample Answer

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