A company has a 13% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following cash flows: 0 1 2 3 5 6 7 $600 -$180 Project A Project B -$300 -$400 -$387 $131 -$193 $131 -$100 $131 $600 $131 $850 $131 $131 $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. Open spreadsheet 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. Project A: % 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? 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% $ $ 5 $ $ 10 $ $ 12 $ $ 15 $ $ 18.1 $ $ 23.54 $ $ 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 13.00% 1 1 0 $300 2 $193 3 $100 $387 4 $600 5 $600 6 $850 7 $180 Project A Project B $400 $131 $131 $131 $131 $131 $131 $0 Formulas Project NPV Calculations: | NPVA WNIA NPV, #N/A Project IRR Calculations: IRRA IRR #N/A Project MIRR Calculations: MIRRA #N/A Alternatively, MIRR, can be calculated as 0 $300 1 $387 2 $193 3 $100 4 $600 5 $600 Project A 6 $850 7 $180 PV of Year 1 Outflow PV of Year 2 Outflow PV of Year 3 Outflow PV of Year 7 Outflow Formulas #N/A #N/A #N/A #N/A Formulas #NA #NIA Formulas N PV PMT FV I/YR = MIRRA 7 S0.00 0 S0.00 #N/A MIRRA #N/A / Alternatively, MIRR, can be calculated as: 2 Project B 0 $400 1 $131 $131 3 $131 $131 4 $ 5 $131 6 $131 7 SO Formulas #N/A #N/A #NIA #NA #N/A #N #N/A # Sum of Outflow PVs #N/A #N/A Formulas N N PV PMT FV I/YR = MIRRE 7 S0.00 0 S0.00 #N/A Project Acceptance! WACC Accept 13.00% #N/A WACC 18.00% WACC NPVA NPV. Accept 18.00% $2.66 $58.19 #N/A NPV Profiles: Discount Rates NPVA Discount Rates NPVA NPVE $58,19 NPV3 $2.66 $2.66 $58.19 0% 5.00% 10.00% 12.00% 15.00% 18.10% 23.54% 0% 5.00% 10.00% 12.00% 15.00% 18.10% 23.54% #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A NPV Profiles $1.20 $1.00 $0.80 $ $0.60 $0.40 $0.20 $ $0.00 0% 5.00% 10.00% 12.00% 15.00% 18.10% 23.54% Calculation of Crossover Rate: 0 -$300 1 -$387 2 $193 3 -$100 4 $600 5 $600 6 $850 7 -$180 Project A Project B -$400 $131 $131 $131 $131 $131 $131 $0 Project Delta #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A Crossover Rate = IRRA #N/A Project MIRR Calculations at WACC = 18% WACC 18.00% #N/A MIRRA MIRRB #N/A
