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A company is analyzing two mutually exclusive projects, S and L, whose cash flows are shown below: Years 0 1 2 3 4 S -1,100
A company is analyzing two mutually exclusive projects, S and L, whose cash flows are shown below:
Years 0 1 2 3 4
S -1,100 900 350 100 10
L -1,100 0 300 550 850
The company's cost of capital is 13 percent, and it can get an unlimited amount of capital at that cost. The cutoff payback period is two years.
- Calculate each projects NPV, payback, discounted payback, IRR and profitability index. Which project would you choose based on each method?
- Show the NPV profile (table and graph) of the two projects and calculate the crossover rate. Which method gives you the correct answer? Is there a conflict between NPV and IRR methods? Explain.
- Calculate each projects MIRR. Which project would you choose? Explain why MIRR is better than IRR.
- Use a data table to do a sensitivity analysis to see how cost of capital affects the IRR and MIRR of the two projects. Explain the intuition.
Please show work in Excel and show formula
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