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A company is considering two mutually exclusive expansion plans. Plan A requires a $ 3 9 million expenditure on a large - scale integrated plant
A company is considering two mutually exclusive expansion plans. Plan A requires a $ million expenditure on a largescale integrated plant that would provide expected cash flows of $ million per year for years. Plan B requires a $ million expenditure to build a somewhat less efficient, more laborintensive plant with an expected cash flow of $ million per year for years. The firm's WACC is 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 Calculate each project's NPV Round your answers to two decimal places. Do not round your intermediate calculations. Enter your answers in millions. For example, an answer of $ should be entered as
Plan :$ million
Plan B: $ million
Calculate each project's IRR. Round your answer to two decimal places.
Plan A:
Plan B:
b By graphing the NP profiles for Plan A and Plan B approximate the crossover rate to the nearest percent.
c Calculate the crossover rate where the two projects' NPVs are equal. Round your answer to two decimal places.
d Why is NPV better than IRR for making capital budgeting decisions that add to shareholder value? The input in the box below will not be graded, but may be reviewed and considered by your instructor.
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