Capital Budgeting

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Capital Budgeting

Part I
PV= FV / (1+i)^y PV= present value, FV= future value, i= discount rate, and y= time. 1a) If the discount rate is 0%, what is the projects net present value? YearCash FlowDiscount RateDiscounted Cash Flow

0-$400,0000%-$400,000
1 $100,0000% $100,000
2 $120,0000% $120,000
3 $850,0000% $850,000
Answer: The projects net present value is $670,000
If the discount rate is 2%, what is the projects net present value? YearCash FlowDiscount RateDiscounted Cash Flow
0-$400,0002%-$400,000
1 $100,0002% $98,039
2 $120,0002% $115,340
3 $850,0002% $800,974
Answer: The projects net present value is $614,353.45
If the discount rate is 6%, what is the projects net present value? YearCash FlowDiscount RateDiscounted Cash Flow
0-$400,0006%-$400,000
1 $100,0006% $94,340
2 $120,0006% $106,800
3 $850,0006% $713,676
Answer: The projects net present value is $514,815.59
If the discount rate is 11%, what is the projects net present value? YearCash FlowDiscount RateDiscounted Cash Flow
0-$400,00011%-$400,000
1 $100,00011% $90,090
2 $120,00011% $97,395
3 $850,00011% $621,513
Answer: The projects net present value is $408,997.46
With a cost of Capital of 5%, what is this project's modified internal rate of return (MIRR)? The formula is: MIRR = (-FV/PV)1/n-1-1
Answer: For this project, the projected MIRR is 42.72%
My next task was to build a graph and explain what is showed. Answer: The graph showed the net present value decreased as the discount rate increased. The net present value crosses the horizontal line at approximately 42%, just before the Modified internal rate of return of 42.72%. 1b) What is the projects internal rate of return?

Answer: IRR = 4.4184%
If the discount rate is...
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