Question

You need to work on the mini-projects in Excel. Your final mini-project report should be well-organized and typed in a Word file. Are required to submit both your Word report and Excel files to the instructor using the mini-project submission tool in Blackboard. The style and organization of the project accounts for 10 points.

Mini-Project 2: Capital Budgeting Analysis (50 points):

A firm is planning a new project that is projected to yield cash flows of -$515,000 in Year 1, $586,000 per year in Years 2 through 3, and $678,000 in Years 4 through 6, and $728,000 in Years 7 through 10. This investment will cost the company $2,780,000 today (initial outlay). We assume that the firm's cost of capital is 9.65%.

(1) Draw a time line to show the cash flows of the project.

(2) Compute payback period, net present value (NPV), profitability index (PI), internal rate of return (IRR), and modified internal rate of return (MIRR).

(3) Discuss whether the project should be taken.

Answer 1

1:

Year	Cash flows
0	-2780000
1	-515000
2	586000
3	586000
4	678000
5	678000
6	678000
7	728000
8	728000
9	728000
10	728000

2:

Payback	7.12
NPV	$306,975.24
PI	1.11
IRR	11.50%
MIRR	10.64%

Since NPV is positive the project should be undertaken.

WORKINGS