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Your division is considering two investment projects, each of which requires an up-form 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 of each of the projects?
If the two projects are independent and the cost of capital is 10%. 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?
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Meghan has accepted a job offer from a large bank as the new CEO. Her base salary will be $200,000 one year from today and it expected to increase by 5% each year. She is also promised a one-time check of $150,000 today for joining the bank. If she w..
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