Background InformationIn this assignment you will complete problems using Excel and the analysis tools in capitalbudgeting. The methods that will be completed are net present value (NPV) payback anddiscounted payback average accounting return (ARR) internal rate of return (IRR) and modifiedinternal rate of return (MIRR) and profitability index (PI). In most of your calculations you willapply concepts learned in the time value of money. These calculations will provide a basis fordetermining whether to accept or reject a project. Instructions1. Review Chapter 9 in Fundamentals of Corporate Finance and the Chapter 9 – Net Present Value and Other Investment Criteria PowerPoint.2. Using Excel complete the following problems in your textbook:a. Net Present Value: Problem 8 on page 300b. Payback and Discounted Payback: Problems 3 and 4 on pages 299c. Average Accounting Return: Problem 6 on page 300d. IRR and MIRR: Problems 7 and 19 on pages 300 and 302e. Profitability Index: Problems 15 and 16 on page 301 #8). Calculating NPV [ LO1] For the cash flows in the previous problem suppose the firm usesthe NPV decision rule. At a required return of 11 percent should the firm accept this project?What if the required return is 25 percent? #3 & #4).3. Calculating Payback [ LO2] Buy Coastal Inc. imposes a payback cutoff of three yearsfor its international investment projects. If the company has the following two projectsavailable should it accept either of them?Year Cash Flow(A) Cash Flow(B)_______________________________________0-$60 000-$70 000123 00015 000228 00018 000321 00026 00048 000230 000 4. Calculating Discounted Payback [ LO3] An investment project has annual cash inflowsof $ 3 200 $ 4 100 $ 5 300 and $ 4 500 and a discount rate of 14 percent. What is thediscounted payback period for these cash flows if the initial cost is $ 5 900? What if theinitial cost is $ 8 000? What if it is $ 11 000? #6). Calculating AAR [ LO4] You’re trying to determine whether to expand your business bybuilding a new manufacturing plant. The plant has an installation cost of $ 12 mil-lion which willbe depreciated straight- line to zero over its four- year life. If the plant has projected net incomeof $ 1 854 300 $ 1 907 600 $ 1 876 000 and $ 1 329 500 over these four years what is theproject’s average accounting return (AAR)? #7). Calculating IRR [ LO5] A firm evaluates all of its projects by applying the IRR rule. If therequired return is 14 percent should the firm accept the following project?1234 YearCash Flow(-)$28 00012 00015 00011 000 #19). MIRR [ LO6] Slow Ride Corp. is evaluating a project with the following cash flows:YearCash Flow1(-)$29 000211 200313 900415 800512 9005(-)9 400The company uses a 10 percent interest rate on all of its projects. Calculate the MIRR of theproject using all three methods.#15 & #16).15. Calculating Profitability Index [ LO7] What is the profitability index for the following set ofcash flows if the relevant discount rate is 10 percent? What if the discount rate is 15 percent? Ifit is 22 percent? Year1234 Cash Flow(-)$18 00010 3009 2005 700 16. Problems with Profitability Index [ LO1 7] The Angry Bird Corporation is trying to choosebetween the following two mutually exclusive design projects:Year0123 Cash Flow ( I)Cash Flow ( II)(-)$64 000(-)$18 00031 0009 70031 0009 70031 0009 700 a. If the required return is 10 percent and the company applies the profitability index decisionrule which project should the firm accept?b. If the company applies the NPV decision rule which project should it take?c. Explain why your answers in (a) and (b) are different.
