Question
Assume you are evaluating two mutually exclusive projects, the cash flows of which appear below and that your company uses a cost of capital of
Assume you are evaluating two mutually exclusive projects, the cash flows of which appear below and that your company uses a cost of capital of 13% to evaluate projects such as these.
| Time | Project A Cash Flows | Project B Cash Flows |
| 0 | -$46,800 | -$63,600 |
| 1 | -21,600 | 20,400 |
| 2 | 43,200 | 20,400 |
| 3 | 43,200 | 20,400 |
| 4 | 43,200 | 20,400 |
| 5 | -28,800 | 20,400 |
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Calculate the payback period and discounted payback period for projects A & B.
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Calculate the IRR and MIRR of projects A & B. Assume a reinvestment rate of 13% for the calculation of MIRR.
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Sketch the NPV profile for projects A & B.
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Determine the crossover point for these projects NPV profiles.
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Assuming a cost of capital of 14%, which of these projects should be accepted?
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Under what conditions on the cost of capital should project B be preferred to project A?
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If Project A and Project B are independent, which project should be undertaken?
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Financial Sector Reform And Privatization In Transition Economies
Authors: John Doukas, Victor Murinde, Clas Wihlborg
1st Edition
044482653X, 9780444826534
