Payback NPV and MIRR

Your Division is considering two investment projects each of which requires an up front expenditure of $25 million. You estimate that the cost of capital is 10% and that the investments will produce the following after tax cash flows (in millions of dollars)

Year                       Project A                             Project B

1                              5                                              20

2                              10                                           10

3                              15                                           8

4                              20                                           6

What is the regular payback period for each of the projects?

What is the discounted payback period for each of the projects?

If the two projects are independent and the cost of capital is 105 which project or projects should the firm undertake

If the two projects are mutually exclusive and the cost of capital is 5% which project should the firm undertake

If the two projects are mutually exclusive and the cost of capital is 15% which project should the firm undertake

What is the crossover rate?

If the cost of capital is 10% what is the modified IRR (MIRR) of each project

Answers are as follows:

A= 2.67 years

B = 1.5 years

A = 3.07 years

B = 1.825 years

NPVa = $12,739,908; IRRa = 27.27%

NPVb = $11,554,880; IRRb = 36.15%

Choose Both

NPVa = $18, 243, 813

NPVb = $14,964,829

Choose A

NPVa = $8,207,071; NPVb = $8, 643, 390

Choose B

13.53%

MIRRa = 21.93%

MIRRb = 2.96%a

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