Chapter 11-1 Soln.
1. Project K costs $52,125, and its expected net cash inflows are $12,000 per year for 8 years, and its
WACC is 12 percent. What is the project’s NPV?
11-1 Financial calculator solution: Input CF0 = -52125, CF1-8 = 12000, I/YR = 12, and then
solve for NPV = $7,486.68.
2. Refer to problem 1. What is the project’s IRR?
11-2 Financial calculator solution: Input CF0 = -52125, CF1-8 = 12000, and then solve for IRR =
16%.
3. Refer to problem 1. What is the project’s MIRR?
11-3 MIRR: PV costs = $52,125.
4. Refer to problem 1. What is the project’s payback?
11-4 Since the cash flows are a constant $12,000, calculate the payback period as:
$52,125/$12,000 = 4.3438, so the payback is about 4 years.
5. You are looking at a new project and you have estimated the following cash flows:
Year 0: -165,000 Year 1: 63,120 Year 2: 70,800
Year 3: 91,080
Your required return for assets of this risk is 12%.
Assume we will accept the project if it pays back within two years. What is the payback period and
should we accept or reject the project?
A. 1.34; Accept
B. 2.34; Accept
C. 2.34; Reject
D. 3.34; Accept
E. 3.34; Reject