11.01

Project K costs $70,000, its expected cash inflows are $13,000 per year for 11 years, and its WACC is 13%. What is the project's NPV? Round your answer to the nearest cent.

$

11.02

Project K costs $43,695.80, its expected cash inflows are $9,000 per year for 11 years, and its WACC is 9%. What is the project's IRR? Round your answer to two decimal places.

%

11.03

Project K costs $70,000, its expected cash inflows are $10,000 per year for 12 years, and its WACC is 11%. What is the project's payback? Round your answer to two decimal places.

years

11.04

Project K costs $25,000, its expected cash inflows are $5,000 per year for 8 years, and its WACC is 11%. What is the project's discounted payback? Round your answer to two decimal places.

years

11.05

Your division is considering two projects with the following cash flows (in millions):

0

1

2

3

Project A	-$21	$14	$9	$3
Project B	-$35	$20	$8	$15

1. What are the projects' NPVs assuming the WACC is 5%? Round your answer to two decimal places. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55.Project A$millionProject B$millionWhat are the projects' NPVs assuming the WACC is 10%? Round your answer to two decimal places. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55.Project A$millionProject B$millionWhat are the projects' NPVs assuming the WACC is 15%? Round your answer to two decimal places. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55.Project A$millionProject B$million
2. Whataretheprojects'IRRsassumingtheWACCis5%?Roundyouranswertotwodecimalplaces.ProjectA%ProjectB%Whataretheprojects'IRRsassumingtheWACCis10%?Roundyouranswertotwodecimalplaces.ProjectA%ProjectB%
4. Whataretheprojects'IRRsassumingtheWACCis15%?Roundyouranswertotwodecimalplaces.ProjectA%ProjectB%

11.06

A mining company is considering a new project. Because the mine has received a permit, the project would be legal; but it would cause significant harm to a nearby river. The firm could spend an additional $11 million at Year 0 to mitigate the environmental Problem, but it would not be required to do so. Developing the mine (without mitigation) would cost $69 million, and the expected net cash inflows would be $23 million per year for 5 years. If the firm does invest in mitigation, the annual inflows would be $24 million. The risk adjusted WACC is 13%.

1. CalculatetheNPVandIRRwithmitigation.Roundyouranswerstotwodecimalplaces.EnteryouranswerforNPVinmillions.Forexample,ananswerof$10,550,000shouldbeenteredas10.55.NPV$millionIRR%
3. CalculatetheNPVandIRRwithoutmitigation.Roundyouranswerstotwodecimalplaces.EnteryouranswerforNPVinmillions.Forexample,ananswerof$10,550,000shouldbeenteredas10.55.NPV$millionIRR%

11.07

A company is analyzing two mutually exclusive projects, S and L, with the following cash flows:

0

1

2

3

4

Project S	-$1,000	$873.06	$250	$10	$10
Project L	-$1,000	$0	$250	$380	$867.44

The company's WACC is 8.5%. What is the IRR of the better project? (Hint: The better project may or may not be the one with the higher IRR.) Round your answer to two decimal places.

%

11.08

Kim Inc. must install a new air conditioning unit in its main plant. Kim must install one or the other of the units; otherwise, the highly profitable plant would have to shut down. Two units are available, HCC and LCC (for high and low capital costs, respectively). HCC has a high capital cost but relatively low operating costs, while LCC has a low capital cost but higher operating costs because it uses more electricity. The costs of the units are shown here. Kim's WACC is 7%.

0

1

2

3

4

5

HCC	-$590,000	-$55,000	-$55,000	-$55,000	-$55,000	-$55,000
LCC	-$110,000	-$175,000	-$175,000	-$175,000	-$175,000	-$175,000

1. Which unit would you recommend?
   1. Since we are examining costs, the unit chosen would be the one that had the lower PV of costs. Since LCC's PV of costs is lower than HCC's, LCC would be chosen.
   2. Since we are examining costs, the unit chosen would be the one that had the lower PV of costs. Since HCC's PV of costs is lower than LCC's, HCC would be chosen.
   3. Since all of the cash flows are negative, the IRR's will be negative and we do not accept any project that has a negative IRR.
   4. Since all of the cash flows are negative, the NPV's cannot be calculated and an alternative method must be employed.
   5. Since all of the cash flows are negative, the NPV's will be negative and we do not accept any project that has a negative NPV.
   -Select-IIIIIIIVVItem 1
2. If Kim's controller wanted to know the IRRs of the two projects, what would you tell him?
   1. The IRR cannot be calculated because the cash flows are all one sign. A change of sign would be needed in order to calculate the IRR.
   2. The IRR cannot be calculated because the cash flows are in the form of an annuity.
   3. The IRR of each project will be positive at a lower WACC.
   4. There are multiple IRR's for each project.
   5. The IRR of each project is negative and therefore not useful for decision-making.
   -Select-IIIIIIIVVItem 2
3. If the WACC rose to 14% would this affect your recommendation?
   1. When the WACC increases to 14%, the IRR for LCC is greater than the IRR for HCC, LCC would be chosen.
   2. When the WACC increases to 14%, the IRR for HCC is greater than the IRR for LCC, HCC would be chosen.
   3. Since all of the cash flows are negative, the NPV's will be negative and we do not accept any project that has a negative NPV.
   4. When the WACC increases to 14%, the PV of costs are now lower for LCC than HCC.
   5. When the WACC increases to 14%, the PV of costs are now lower for HCC than LCC.
   -Select-IIIIIIIVVItem 3 Explain your answer and why this result occurred.
   1. The reason is that when you discount at a higher rate you are making negative CFs higher thus improving the IRR.
   2. The reason is that when you discount at a higher rate you are making negative CFs higher thus improving the NPV.
   3. The reason is that when you discount at a higher rate you are making negative CFs higher and this lowers the NPV.
   4. The reason is that when you discount at a higher rate you are making negative CFs smaller and this lowers the NPV.
   5. The reason is that when you discount at a higher rate you are making negative CFs smaller thus improving the NPV.
   -Select-IIIIIIIVV