A firm with a 14% WACC is evaluating two projects for this year's capital budget. After-tax…

A firm with a 14% WACC is evaluating two projects for this
Year’s capital budget. Cash flows after-tax, which includes
Depreciation is as follows:

 0 1 2 3 4 5
 Project M -\$6,000 \$2,000 \$2,000 \$2,000 \$2,000 \$2,000 Project N -\$18,000 \$5,600 \$5,600 \$5,600 \$5,600 \$5,600
1. For each project, calculate the NPV. Round up your answers for the
Count to the nearest hundredth. Don’t round intermediate numbers.
Project M    \$
Project N    \$

Find the IRR of each project. Round the answers by two
Place decimal points. Your intermediate calculations should not be rounded.
Project M      %
Project N      %

Each project’s MIRR should be calculated. Round the answers by two
Place decimal points. Your intermediate calculations should not be rounded.
Project M      %
Project N      %

Each project’s payback should be calculated. Round the answers by two
Place decimal points. Your intermediate calculations should not be rounded.
Project M      years
Project N      years

For each project, calculate the discounted payback. Round your
calculations.
Project M      years
Project N      years

2. Assuming that the projects are separate, which of them would you prefer?
recommend?
-Select-

1. Since both projects have the same NPV, they would both be approved
positive.
2. Only Project M would be accepted because IRR(M) >
IRR(N).
3. Because both projects have the same NPV, they would be turned down.
negative.
4. Only Project M would be accepted because NPV(M) >
NPV(N).
5. Only Project N would be accepted because NPV(N) >
NPV(M).Item 11
3. Which project would you choose if they are mutually exclusive?
recommend?
-Select-

1. If they are not mutually exclusive, then the project will be with the
Choose the shortest possible Payback Period.
2. Accept Project M. If the projects are not mutually exclusive,
The highest positive IRR project is selected.
3. Accept Project N. If the projects are not mutually exclusive,
Choose the project that has the highest positive Net Present Value.
4. Accept Project N. If the projects are not mutually exclusive,
The highest positive IRR project is selected.
5. Accept Project M. If the projects are not mutually exclusive,
The project that has the greatest positive MIRR will be chosen.
6. Accept Project M.Item 12.
4. The cash flow timings for the different projects are identical.
pattern. Why does NPV conflict with IRR?
-Select-

1. Because of the differences, there is a conflict between NPV & IRR
In the project size.
2. The relatively high IRR and NPV causes the conflict between IRR and NPV.
Get a discount
3. The difference between NPV & IRR can be attributed to the fact that IRR and NPV are not compatible.
Cash flows can be in the form an annuity.
4. The IRR and NPV are in conflict due to differences in
The timing of cash flow.
5. Item 13: There are no conflicts between NPV or IRR.
Pages (550 words)
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