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1.  Problem 11.07

Click here to read the eBook: Net Present Value (NPV) Click here to read the eBook: Internal Rate of Return (IRR) Click here to read the eBook: Modified Internal Rate of Return(MIRR) Click here to read the eBook: Payback Period CAPITAL BUDGETING CRITERIA A firm with a 13% WACC is evaluating two projects for thisyear's capital budget. After-tax cash flows, includingdepreciation, are as follows: 0 1 2 3 4 5 Project M -$12,000 $4,000 $4,000 $4,000 $4,000 $4,000 Project N -$36,000 $11,200 $11,200 $11,200 $11,200 $11,200 Calculate NPV for each project. Round your answers to thenearest cent. Do not round your intermediate calculations. Project M    $ Project N    $ Calculate IRR for each project. Round your answers to twodecimal places. Do not round your intermediate calculations. Project M      % Project N      % Calculate MIRR for each project. Round your answers to twodecimal places. Do not round your intermediate calculations. Project M      % Project N      % Calculate payback for each project. Round your answers to twodecimal places. Do not round your intermediate calculations. Project M      years Project N      years Calculate discounted payback for each project. Round youranswers to two decimal places. Do not round your intermediatecalculations. Project M      years Project N      years Assuming the projects are independent, which one(s) would yourecommend? -Select-Both projects would be rejected since both of their NPV'sare negative.Only Project M would be accepted because NPV(M) >NPV(N).Only Project N would be accepted because NPV(N) >NPV(M).Both projects would be accepted since both of their NPV'sare positive.Only Project M would be accepted because IRR(M) >IRR(N).Item 11 If the projects are mutually exclusive, which would yourecommend? -Select-If the projects are mutually exclusive, the project withthe highest positive NPV is chosen. Accept Project N.If theprojects are mutually exclusive, the project with the highestpositive IRR is chosen. Accept Project M.If the projects aremutually exclusive, the project with the highest positive MIRR ischosen. Accept Project M.If the projects are mutually exclusive,the project with the shortest Payback Period is chosen. AcceptProject M.If the projects are mutually exclusive, the project withthe highest positive IRR is chosen. Accept Project N.Item 12 Notice that the projects have the same cash flow timingpattern. Why is there a conflict between NPV and IRR? -Select-The conflict between NPV and IRR is due to the differencein the timing of the cash flows.There is no conflict between NPVand IRR.The conflict between NPV and IRR occurs due to thedifference in the size of the projects.The conflict between NPV andIRR is due to the relatively high discount rate.The conflictbetween NPV and IRR is due to the fact that the cash flows are inthe form of an annuity.Item 13