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Chapter 11: The Basics of Capital Budgeting
79. Warr Company is considering a project that has the following cash flow data. What is the project's IRR? Note that a
project's projected IRR can be less than the WACC or negative, in both cases it will be rejected.
Year
0
1
2
3
4
Cash flows
-$1565
$400
$400
$400
$400
a.
0.85%
b.
0.78%
c.
0.88%
d.
0.76%
e.
0.91%
Chapter 11: The Basics of Capital Budgeting
80. Thorley Inc. is considering a project that has the following cash flow data. What is the project's IRR? Note that a
project's projected IRR can be less than the WACC or negative, in both cases it will be rejected.
Year
0
1
2
3
4
5
Cash flows
-$1,100
$325
$325
$325
$325
$325
a.
14.59%
b.
15.18%
c.
11.24%
d.
16.20%
e.
13.43%
81. Taggart Inc. is considering a project that has the following cash flow data. What is the project's payback?
Year
0
1
2
3
Cash flows
-$1,125
$500
$500
$500
a.
2.25 years
b.
2.41 years
c.
2.07 years
Chapter 11: The Basics of Capital Budgeting
d.
1.87 years
e.
2.50 years
82. Resnick Inc. is considering a project that has the following cash flow data. What is the project's payback?
Year
0
1
2
3
Cash flows
-$475
$200
$200
$200
a.
2.61 years
b.
1.97 years
c.
2.42 years
d.
2.26 years
e.
2.38 years
Chapter 11: The Basics of Capital Budgeting
83. Susmel Inc. is considering a project that has the following cash flow data. What is the project's payback?
Year
0
1
2
3
Cash flows
-$475
$150
$200
$300
a.
2.42 years
b.
1.96 years
c.
2.88 years
d.
2.47 years
e.
2.85 years
Chapter 11: The Basics of Capital Budgeting
84. Mansi Inc. is considering a project that has the following cash flow data. What is the project's payback?
Year
0
1
2
3
Cash flows
-$500
$300
$325
$350
a.
1.28 years
b.
1.58 years
c.
1.83 years
d.
1.62 years
e.
1.49 years
85. Cornell Enterprises is considering a project that has the following cash flow and WACC data. What is the project's
NPV? Note that a project's projected NPV can be negative, in which case it will be rejected.
Chapter 11: The Basics of Capital Budgeting
WACC:
10.00%
Year
0
1
2
3
Cash flows
-$1,275
$450
$460
$470
a.
-$106.10
b.
-$132.63
c.
-$139.26
d.
-$125.99
e.
-$165.78
86. Warnock Inc. is considering a project that has the following cash flow and WACC data. What is the project's NPV?
Note that a project's projected NPV can be negative, in which case it will be rejected.
WACC:
10.00%
Year
0
1
2
3
Cash flows
-$1,050
$500
$400
$300
a.
-$47.38
b.
-$39.09
c.
-$29.61
d.
-$40.27
e.
-$39.48
Chapter 11: The Basics of Capital Budgeting
87. Jazz World Inc. is considering a project that has the following cash flow and WACC data. What is the project's NPV?
Note that a project's projected NPV can be negative, in which case it will be rejected.
WACC:
9.75%
Year
0
1
2
3
4
Cash flows
-$1,200
$400
$425
$450
$475
a.
0$222.13
b.
0$185.11
c.
0$157.34
d.
0$174.00
e.
0$198.07
Chapter 11: The Basics of Capital Budgeting
88. Barry Company is considering a project that has the following cash flow and WACC data. What is the project's NPV?
Note that a project's projected NPV can be negative, in which case it will be rejected.
WACC:
11.75%
Year
0
1
2
3
4
5
Cash flows
-$1,100
$400
$390
$380
$370
$360
a.
0$286.36
b.
0$294.95
c.
0$349.36
d.
0$309.27
e.
0$355.08
89. Datta Computer Systems is considering a project that has the following cash flow data. What is the project's IRR?
Note that a project's projected IRR can be less than the WACC (and even negative), in which case it will be rejected.
Year
0
1
2
3
Cash flows
-$1,050
$450
$470
$490
a.
12.69%
b.
13.98%
c.
15.58%
Chapter 11: The Basics of Capital Budgeting
d.
18.15%
e.
16.07%
90. Simkins Renovations Inc. is considering a project that has the following cash flow data. What is the project's IRR?
Note that a project's projected IRR can be less than the WACC (and even negative), in which case it will be rejected.
Year
0
1
2
3
4
Cash flows
-$625
$300
$290
$280
$270
a.
29.04%
b.
32.63%
c.
24.55%
d.
30.83%
e.
29.94%
Chapter 11: The Basics of Capital Budgeting
91. Maxwell Feed & Seed is considering a project that has the following cash flow data. What is the project's IRR? Note
that a project's projected IRR can be less than the WACC (and even negative), in which case it will be rejected.
Year
0
1
2
3
4
5
Cash flows
-$6,750
$2,000
$2,025
$2,050
$2,075
$2,100
a.
15.45%
b.
17.17%
c.
13.74%
d.
15.61%
e.
12.96%
92. Last month, Lloyd's Systems analyzed the project whose cash flows are shown below. However, before the decision to
Chapter 11: The Basics of Capital Budgeting
accept or reject the project, the Federal Reserve took actions that changed interest rates and therefore the firm's WACC.
The Fed's action did not affect the forecasted cash flows. By how much did the change in the WACC affect the project's
forecasted NPV? Note that a project's projected NPV can be negative, in which case it should be rejected.
Old WACC:
10.00%
New WACC:
9.50%
Year
0
1
2
3
Cash flows
-$1,000
$410
$410
$410
a.
0$9.04
b.
0$11.12
c.
0$10.22
d.
0$10.85
e.
0$10.13
93. Lasik Vision Inc. recently analyzed the project whose cash flows are shown below. However, before Lasik decided to
accept or reject the project, the Federal Reserve took actions that changed interest rates and therefore the firm's WACC.
The Fed's action did not affect the forecasted cash flows. By how much did the change in the WACC affect the project's
forecasted NPV? Note that a project's projected NPV can be negative, in which case it should be rejected.
Old WACC:
8.00%
New WACC:
9.75%
Year
0
1
2
3
Cash flows
-$1,000
$410
$410
$410
a.
-$30.55
b.
-$34.12
c.
-$32.50
Chapter 11: The Basics of Capital Budgeting
d.
-$28.60
e.
-$29.25
94. Ehrmann Data Systems is considering a project that has the following cash flow and WACC data. What is the project's
MIRR? Note that a project's projected MIRR can be less than the WACC (and even negative), in which case it will be
rejected.
WACC:
9.00%
Year
0
1
2
3
Cash flows
-$1,000
$450
$450
$450
a.
13.84%
b.
14.53%
c.
17.29%
d.
13.28%
e.
13.70%
Chapter 11: The Basics of Capital Budgeting
95. Ingram Electric Products is considering a project that has the following cash flow and WACC data. What is the
project's MIRR? Note that a project's projected MIRR can be less than the WACC (and even negative), in which case it
will be rejected.
WACC:
7.00%
Year
0
1
2
3
Cash flows
-$800
$350
$350
$350
a.
14.93%
b.
10.00%
c.
12.04%
d.
13.97%
e.
9.15%
Chapter 11: The Basics of Capital Budgeting
96. Malholtra Inc. is considering a project that has the following cash flow and WACC data. What is the project's MIRR?
Note that a project's projected MIRR can be less than the WACC (and even negative), in which case it will be rejected.
WACC:
10.00%
Year
0
1
2
3
4
Cash flows
-$975
$300
$320
$340
$360
a.
14.45%
b.
12.92%
c.
12.57%
d.
11.28%
e.
11.75%
