Problem 1:

Capital Budgeting

Calculate the PV of the individual cash flows using the algebraic method. The value in the yellow cell will calculate on its own. Treat each valuein row 7 as if it was a single cash flow.

Enter the NPV function. Be sure to properly account for the initial cost!

Enter the IRR function.

Calculate the MIRR using the RATE function with nper=6, pv=-100, and fv=terminal value. Note pmt=0.

Problem 2:

Silkwood Power Company is considering two projects with the following predicted cash flows:

Answer these questions:

1. Which project(s) would be accepted if the company's cost of capital were 6%?
2. Which project(s) would be accepted if the company's cost of capital were 15%?
3. At what cost of capital would Silkwood value each project equally? (You can use an approximate answer here.)
4. At what cost of capital would the Hydro project become unacceptable? (Hint: Look at the IRR result.)
5. At what cost of capital would the Geo project become unacceptable? (Hint: Look at the IRR result.)

Problem 3:

Project A has an initial investment of $11,000, and generates positive cash flows of $4,000 each year for the next six years. Project B has an initial investment of $17,000, and generates positive cash flows of $4,500 each year for the next six years. Assume the discount rate is 13%.

Because Projects B and C are mutually exclusive, would you recommend that Project B or Project C be added to the capital budget for this year?

Attachment:- Problems.xlsx