A company has a 11% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following cash flows: 0 Open spreadsheet Project A: 3 5 + + Project A -$300 -$387 -$193 $600 $600 $850 -$100 $133 $133 $133 $133 $133 Project B -$400 $133 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. 1 Discount Rate a. What is each project's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations. Project A: $ Project B: $ b. What is each project's IRR? Round your answer to two decimal places. 0% 5 10 % 12 15 18.1 24.18 Project B: 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: Project B: d. From your answers to parts a-c, which project would be selected? % % % If the WACC was 18%, which project would be selected? 2 % 4 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. % 6 NPV Project A $ % 7 $ $ $ $ $ $ -$180 $0 NPV Project B $ $ $ $ $ $ $ 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. 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: Project B: Capital budgeting criteria WACC Project A Project B Project NPV Calculations: NPVA NPVB Project IRR Calculations: IRRA IRRB Project MIRR Calculations: MIRRA Alternatively, MIRRA can be calculated as: Project A PV of Year 1 Outflow PV of Year 2 Outflow PV of Year 3 Outflow PV of Year 7 Outflow Sum of Outflow PVs N PV PMT FV I/YR = MIRRA MIRRB 11.00% Formulas #N/A #N/A #N/A #N/A #N/A 7 $0.00 0 $0.00 0 -$300 -$400 #N/A #N/A #N/A #N/A #N/A 0 -$300 #N/A 1 -$387 $133 Formulas 1 -$387 Formulas #N/A 2 -$193 $133 2 -$193 3 -$100 $133 3 -$100 4 $600 $133 4 $600 5 $600 $133 5 $600 6 $850 $133 6 $850 7 -$180 $0 7 -$180 Formulas #N/A #N/A #N/A #N/A FV of Year 6 Inflow at Year 7 FV of Year 5 Inflow at Year 7 FV of Year 4 Inflow at Year 7 Sum of Inflow FVs Alternatively, MIRRB can be calculated as: Project B Sum of Outflow PVs N PV PMT FV I/YR = MIRRB Project Acceptance: WACC Accept WACC NPVA NPVB Accept NPV Profiles: Discount Rates 0% 5.00% 10.00% 12.00% 15.00% 18.10% #N/A NPVA 7 $0.00 0 $0.00 11.00% 18.00% $2.66 $65.18 $2.66 0 -$400 Formulas #N/A #N/A #N/A NPVB 1 $133 $65.18 2 $133 3 $133 Discount Rates 0% 5.00% 10.00% 12.00% 15.00% 18.10% 4 $133 NPVA #N/A #N/A #N/A #N/A #N/A #N/A $2.66 5 $133 NPVB #N/A #N/A #N/A #N/A #N/A #N/A $65.18 6 $133 7 $0 Formulas #N/A #N/A #N/A #N/A #N/A #N/A #N/A FV of Year 6 Inflow at Year 7 FV of Year 5 Inflow at Year 7 FV of Year 4 Inflow at Year 7 FV of Year 3 Inflow at Year 7 FV of Year 2 Inflow at Year 7 FV of Year 1 Inflow at Year 7 Sum of Inflow FVs $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 0% Calculation of Crossover Rate: Project A Project B Project Delta Crossover Rate = IRRA 5.00% Project MIRR Calculations at WACC = 18% WACC MIRRA MIRR 10.00% 18.00% NPV Profiles 0 -$300 -$400 #N/A #N/A #N/A #N/A 12.00% 1 -$387 $133 #N/A 2 -$193 $133 #N/A 15.00% 3 -$100 $133 #N/A 18.10% 4 $600 $133 #N/A 24.18% 5 $600 $133 #N/A 6 $850 $133 #N/A 7 -$180 $0 #N/A