CAPITAL BUDGETING CRITERIA A company has a 12% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following cash flows:

0 2 3 2$180

$0

$850

$134 2$100

$134 2$193

$134 2$387

$134 2$300 2$405 Project A Project B 6 7

$600

$134 4

$600

$134

a. What is each project’s NPV?

b. What is each project’s IRR?

c. What is each project’s MIRR? (Hint: Consider Period 7 as the end of Project B’s life.)

d. From your answers to Parts

a, b, and

c, which project would be selected? If the WACC was 18%, which project would be selected?

e. Construct NPV profiles for Projects A and B.

f. Calculate the crossover rate where the two projects’ NPVs are equal.
g. What is each project’s MIRR at a WACC of 18%?AppendixlLO1