MANAGERIAL FINANCE DECISION MKNG
The job must be done on excel and original work
11-1 NPV Project L costs $65,000, its expected cash inflows are $12,000 per year for 9 years, and its WACC is 9%. What is the project’s NPV?
11-2 IRR Refer to problem 11-1. What is the project’s IRR?
11-4 PAYBACK PERIOD Refer to problem 11-1. What is the project’s payback?
11-8 CAPITAL BUDGETING CRITERIA: ETHICAL CONSIDERATIONS A mining company is considering a new project. Because the mine has received a permit, the project would be legal; but it would cause significant harm to a nearby river. The firm could spend an additional $10 million at Year 0 to mitigate the environmental problem, but it would not be required to do so. Developing the mine (without mitigation) would cost $60 million, and the expected cash inflows would be $20 million per year for 5 years. If the firm does invest in mitigation, the annual inflows would be $21 million. The risk-adjusted WACC is 12%.
a. Calculate the NPV and IRR with and without mitigation.
b. How should the environmental effects be dealt with when this project is evaluated?
c. Should this project be undertaken? If so, should the firm do the mitigation?
11-11 CAPITAL BUDGETING CRITERIA: MUTUALLY EXCLUSIVE PROJECTS Project S costs $17,000, and its expected cash flows would be $5,000 per year for 5 years. Mutually exclusive Project L costs $30,000, and its expected cash flows would be $8,750 per year for 5 years. If both projects have a WACC of 12%, which project would you recommend? Explain