Capital Budgeting Practice Problems
Question 1: Consider the project with the following expected cash flows:
Year Cash flow
0 - $550,000
1 $ 90,000
2 $100,000
3 $450,000
If the discount rate is 0%, what is the project's net present value?
If the discount rate is 4%, what is the project's net present value?
If the discount rate is 8%, what is the project's net present value?
If the discount rate is 10%, what is the project's net present value?
What is this project's internal rate of return?
Question 2: Consider a project with the expected cash flows:
Year Cash flow
0 - $315,000
1 + 71,000
2 + 150,000
3 + $150,000
What is this project's internal rate of return?
If the discount rate is 0%, what is this project's net present value?
If the discount rate is 4%, what is this project's net present value?
If the discount rate is 8%, what is this project's net present value?
If the discount rate is 12%, what is this project's net present value?
I think by using the present value formulas for each but not sure how to get the entire group years this in refreance to both questions?
Question 3: A project requiring a $3.3 million investment has a profitability index of 0.96. What is its net present value?