Chapter 13 - Weighing Net Present Value and Other Capital Budgeting Criteria

Week 10 Unit 8

CHAPTER 13 - WEIGHING NET PRESENT VALUE AND OTHER CAPITAL

BUDGETING CRITERIA

questions

LG1 1. Is the set of cash flows depicted in the following table normal or non-normal? Explain.

Time 0 1 2 3 4 5
Cash $
-$100 -$50 -$80 $100 $100
Flow 0

Problems

LG2 13-2 NPV with Normal Cash Flows Compute the NPV statistic for Project Y and note
whether the firm should accept or reject the project with the cash flows shown as follows
if the appropriate cost of capital is 12 percent.

Project Y

0 1 2 3 4
Time
$4,18
Cash Flow -$8,000 $3,350 $1,520 $300
0

LG3 13-4 NPV with Non-normal Cash Flows Compute the NPV statistic for Project K and
recommend whether the firm should accept or reject the project with the cash flows
shown as follows if the appropriate cost of capital is 6 percent.

Project K

Time 0 1 2 3 4 5
$5,00
Cash Flow -$10,000 $6,000 $6,000 $5,000 -$10,000
0

LG3 13-6 Payback Compute the payback statistic for Project A and recommend whether the firm
should accept or reject the project with the cash flows shown as follows if the appropriate
cost of capital is 8 percent and the maximum allowable payback is four years.

Project A

13-1
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Education.
 Chapter 13 - Weighing Net Present Value and Other Capital Budgeting Criteria

0 1 2 3 4 5
Time
$52
Cash Flow -$1,000 $350 $480 $300 $100
0

LG3 13-8 Discounted Payback Compute the discounted payback statistic for Project D and
recommend whether the firm should accept or reject the project with the cash flows
shown as follows if the appropriate cost of capital is 12 percent and the maximum
allowable discounted payback is four years.

Project D

0 1 2 3 4 5
Time
$1,52
Cash Flow -$11,000 $3,350 $4,180 $300 $1,000
0

LG5 13-9 IRR Compute the IRR statistic for Project E and note whether the firm
should accept or reject the project with the cash flows shown as follows if the
appropriate cost of capital is 8 percent.

Project E

0 1 2 3 4 5
Time
$52
Cash Flow -$1,000 $350 $480 $300 $100
0

LG5 13-12 MIRR Compute the MIRR statistic for Project J and advise whether to
accept or reject the project with the cash flows shown as follows if the appropriate cost
of capital is 10 percent.

Project J

0 1 2 3 4 5
Time
$1,48
Cash Flow -$1,000 $350 -$520 $300 -$100
0

13-2
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Education.
 Chapter 13 - Weighing Net Present Value and Other Capital Budgeting Criteria

LG5 13-14 PI Compute the PI statistic for Project Q and tell whether you would accept or reject the
project with the cash flows shown as follows if the appropriate cost of capital is 12
percent.

LG1 13-16 Multiple IRRs How many possible IRRs could you find for the following set of cash
flows?

Time 0 1 2 3 4
-
Cash Flow -$39,350 $440,180 $217,520 -$2,000
$211,000

13-3
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.