# Finance Capital budgeting : Calculation of NPV

Document Sample

```					              Sub: Finance                                                                    Topic: Capital Budgeting

Question:
Calculation of NPV, IRR, MIRR, PI and decision making
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Project S has a cost of \$10,000 and is expected to produce benefits (cash flows) of \$3000 per year for 5
years. Project L costs \$25,000 and is expected to produce cash flows of \$7,400 per year for 5 years.
Calculate the two projects' NPVs, IRRs, MIRRs, and PIs, assuming a cost of capital of 12%. Which project
would be selected, assuming they are mutually exclusive, using each ranking method? Which should
actually be selected?

Solution:

A) Project S
year                                0            1             2
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Description: Computation of Equated Annual Cost (EAC). : You are evaluating two different silicon wafer milling machines. The Techron I costs \$195,000, has a three-year life, and has pretax operating costs of \$32,000 per year.
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