Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A company has a 1 2 % WACC and is considering two mutually exclusive investments ( that cannot be repeated ) with the following cash

A company has a 12% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following cash flows:
01234567
Project A -$300-$387-$193-$100 $600 $600 $850-$180
Project B -$405 $134 $134 $134 $134 $134 $134 $0
What is each project's NPV? Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest cent.
Project A: $
200.41
Project B: $
What is each project's IRR? Do not round intermediate calculations. Round your answers to two decimal places.
Project A:
18.10
%
Project B:
%
What is each project's MIRR? (Hint: Consider Period 7 as the end of Project B's life.) Do not round intermediate calculations. Round your answers to two decimal places.
Project A:
%
Project B:
%
From your answers to parts a-c, which project would be selected?
Project A
If the WACC was 18%, which project would be selected?
Project B
Construct NPV profiles for Projects A and B. If an amount is zero, enter 0. Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest cent.
Discount Rate NPV Project A NPV Project B
0% $
890
$
398
5
540.09
275.07
10
283.34
179.25
12
200.41
146.82
15
92.96
18.1
-.09
23.97
.04
Calculate the crossover rate where the two projects' NPVs are equal. Do not round intermediate calculations. Round your answer to two decimal places.
%
What is each project's MIRR at a WACC of 18%? Do not round intermediate calculations. Round your answers to two decimal places.
Project A:
%
Project B:
%

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Introduction to Finance Markets Investments and Financial Management

Authors: Melicher Ronald, Norton Edgar

15th edition

9781118800720, 1118492676, 1118800729, 978-1118492673

More Books

Students also viewed these Finance questions

Question

Draw the structural formulas for three isomers of pentane, C5H12.

Answered: 1 week ago