Part 1. Capital Budgeting Practice Problems
a Use expected cash flows:
Year Cash flow
0 -$400,000
1 $100,000
2 $120,000
3 $850,000
Show the PV with the following discount rates: 0%, 2%, 6%, 11%
What is IRR with a cost of capital of 5%?
Plot the discount rate on a chart, show where graph intersects horizontal axis.
Describe what you see in the chart/graph.
b. Use expected cash flows:
Year Cash flow
0 -$815,000
1 $141,000
2 $320,000
3 $440,000
Calculate the IRR.
Show the PV with the following discount rates: 1%, 4%, 10%, 18%
Plot the discount rate on a chart, show where graph intersects horizontal axis.
Describe what you see in the chart/graph.
c. What is the PV of a project requiring a $4.2 million investment has a profitability index of 0.94?