# Capital Budgeting Techniques

**Question description**

##### Questions

In a Word document, respond to the following. Number your responses 1–4.

- Explain the net present value (NPV) method for determining a capital budgeting project's desirability. What is the acceptance benchmark when using NPV?
- Explaint the payback period statistic. What is the acceptance benchmark when using the payback period statistic?
- Describe the internal rate of return (IRR) as a method for deciding the desirability of a capital budgeting project. What is the acceptance benchmark when using IRR?
- Describe the modified internal rate of return (MIRR) as a method for deciding the desirability of a capital budgeting project. What are MIRR's strengths and weaknesses?

Use references to support your responses as needed. Be sure to cite all references using correct APA style. Your responses should be free of grammar and spelling errors, demonstrating strong written communication skills.

##### Problems

In either a Word document or Excel spreadsheet, complete the following problems.

- You may solve the problems algebraically, or you may use a financial calculator or an Excel spreadsheet.
- If you choose to solve the problems algebraically, be sure to show your computations.
- If you use a financial calculator, show your input values.
- If you use an Excel spreadsheet, show your input values and formulas.

In addition to your solution to each computational problem, you must show the supporting work leading to your solution to receive credit for your answer.

- Based on the cash flows shown in the chart below, compute the NPV for Project Huron. Suppose that the appropriate cost of capital is 12 percent. Advise the organization about whether it should accept or reject the project. Project Huron
- Based on the cash flows shown in the chart below, compute the IRR and MIRR for Project Erie. Suppose that the appropriate cost of capital is 12 percent. Advise the organization about whether it should accept or reject the project. Project Erie

Time | 0 | 1 | 2 | 3 | 4 |
---|---|---|---|---|---|

Cash Flow | $12,000 | $2,360 | $4,390 | $1,520 | $3,300 |

Time | 0 | 1 | 2 | 3 | 4 | 5 |
---|---|---|---|---|---|---|

Cash Flow | $12,000 | $2,360 | $4,390 | $1,520 | $980 | $1,250 |

## Tutor Answer

Brown University

1271 Tutors

California Institute of Technology

2131 Tutors

Carnegie Mellon University

982 Tutors

Columbia University

1256 Tutors

Dartmouth University

2113 Tutors

Emory University

2279 Tutors

Harvard University

599 Tutors

Massachusetts Institute of Technology

2319 Tutors

New York University

1645 Tutors

Notre Dam University

1911 Tutors

Oklahoma University

2122 Tutors

Pennsylvania State University

932 Tutors

Princeton University

1211 Tutors

Stanford University

983 Tutors

University of California

1282 Tutors

Oxford University

123 Tutors

Yale University

2325 Tutors