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Capital budgeting project selection assignment

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Reference no: EM133055807

Capital Budgeting Project Selection Assignment

For the following two projects, determine the 

  • Payback Period
  • Discounted Payback
  • Net Present Value
  • Profitability Index (Benefit-Cost Ratio)
  • Internal Rate of Return
  • Modified Internal Rate of Return

                

Project A

 

 

Project B

 

 

Year

 

Net Income

Cash Flow

 

Net Income

Cash Flow

0

 

 

(10,000)

 

 

(10,000)

1

 

7,000

9,000

 

1,000

2,000

2

 

3,000

2,000

 

9,000

10,000

 

 

 

 

 

 

 
  • Note that Project A is a Below Average risk project while Project B is of Above Average risk.
  • Assume your firm is in the 40% tax bracket, and that your cost of capital is 9%. 
  • The firm adjusts its projects with risk adjusted discount rates to account for project risks. 
  • The risk schedule applied is as follows:

Risk Class

Description

RADR

Below Average 

Less than Firm Average Risk

8%

Average

Risk equal to Firm Average Risk

9%

Above Average

Higher than Normal but Not Excessive Risk

10%

Highest Risk

Extremely High Risk

15%

Reference no: EM133055807

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