Question
A company has a 11% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following cash flows: 0 1 2
A company has a 11% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following cash flows:
| 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 |
| Project A | -$300 | -$387 | -$193 | -$100 | $600 | $600 | $850 | -$180 |
| Project B | -$400 | $134 | $134 | $134 | $134 | $134 | $134 | $0 |
The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.
a.
What is each project's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations.
Project A: $ fill in the blank
Project B: $ fill in the blank
b.
What is each project's IRR? Round your answer to two decimal places.
Project A: fill in the blank %
Project B: fill in the blank %
c.
What is each project's MIRR? (Hint: Consider Period 7 as the end of Project B's life.) Round your answer to two decimal places. Do not round your intermediate calculations.
Project A: fill in the blank %
Project B: fill in the blank %
d.
From your answers to parts a-c, which project would be selected?
Project A or Project B
If the WACC was 18%, which project would be selected?
Project A or Project B
e.
Construct NPV profiles for Projects A and B. Round your answers to the nearest cent. Do not round your intermediate calculations. Negative value should be indicated by a minus sign.
| Discount Rate | NPV Project A | NPV Project B |
| 0% | $ fill in the blank | $ fill in the blank |
| 5 | $ fill in the blank | $ fill in the blank |
| 10 | $ fill in the blank | $ fill in the blank |
| 12 | $ fill in the blank | $ fill in the blank |
| 15 | $ fill in the blank | $ fill in the blank |
| 18.1 | $ fill in the blank | $ fill in the blank |
| 24.51 | $ fill in the blank | $ fill in the blank |
f.
Calculate the crossover rate where the two projects' NPVs are equal. Round your answer to two decimal places. Do not round your intermediate calculations.
fill in the blank %
g.
What is each project's MIRR at a WACC of 18%? Round your answer to two decimal places. Do not round your intermediate calculations.
Project A: fill in the blank %
Project B: fill in the blank %
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Pacific Economic Monitor July 2013
Authors: Asian Development Bank
1st Edition
9292541552,9292541560
