c) Plot NPV profiles for Project A and B based on the findings in part (c) into the chart below. Draw the NPV profile for project A in blue color and the NPV profile for Project B in red color. Clearly label the crossover point where the two graphs meet with the letter X. Also label the points where the two graphs meet the horizontal axis with letters A and B, respectively.
Can you help answer question C of the first three pages. and questions D, E, and F of the last two pages. Thanks
Problem #1 Capital Budgeting Consider the following projects with given cash flows: Year Project A Project B -$300,000 $150,000 $125,000 $75,000 $50,000 $50,000 -$300,000 $60,000 $80,000 $100,000 $120,000 $140,000 (a) Calculate the IRR for each project. Fill out table below. Write percentage values to two decimal places. For example, 12.67% is acceptable while rounding it such as 13% is not acceptable. Project A Project B IRR 19.89./. 17.01 (b) Calculate the NPV for each project at various discount rates listed below. Fill out the table. Write the dollar amounts up to cents. For example, $12.34 is acceptable, while just rounding it like $12 is not acceptable. Discount Rate NPV for Project A NPV for Project B 129,357.91 - 167,613.03 110 311.59 1 32 202.74 P2698 111432.80 176374.3187011.12 61214.77 I 64,683.24 49226.89 12% 490 14% 16% 25,447.32 8,173 69 -7994.95 -2.249.24 -36032.21 21635.24 10, 123.92 525-13 -0,692.45 18% 20% 22% 24% - 20196.12 -42,623.13 (c) Plot NPV profiles for Project A and B based on the findings in part (c) into the chart below. Draw the NPV profile for project A in blue color and the NPV profile for Project B in red color. Clearly label the crossover point where the two graphs meet with the letter X. Also label the points where the two graphs meet the horizontal axis with letters A and B, respectively, NPV 18% 20% 16% 22% 24% 14% 12% 10% 8% 6% 0$ 2% 4% US (d) We will now perform a sensitivity analysis by recalculating the NPV by changing the value of one variable at a time. Consider the following base, low and high values for each of the input variables listed below. Base value Low value High value Unit price $6.50 $6.00 $7.00 Annual unit sales 52,000 50,000 55,000 Variable cost per unit $1.75 $1.50 $2.00 Expected salvage value $45,000 $30,000 $60,000 Tax rate 35 percent 30 percent 40 percent Required rate of return 11 percent 10 percent 13 percent Fill out the table below by recalculating the NPV under each individual change. Project NPV Variable With low estimate With high estimate Range of estimates Unit price Annual unit sales Variable cost per unit Expected salvage value Tax rate Required rate of return (e) Which of the variables has the most effect on NPV? How do you explain it? We continue with the same problem set up. Consider the following three scenarios: SCENARIO Variable Pessimistic Most likely Optimistic $7.00 Unit Price $6.00 $6.50 Annual unit sales 50,000 52,000 55,000 Variable cost per unit $2.00 $1.75 $1.50 Investment in fixed capital $385,000 $350,000 $315,000 Investment in working capital $80,000 $60,000 $40,0000 Project life 7 years 7 years 7 years Depreciation (straight line) $55,000 $50,000 $45,000 Salvage value $30,000 $45,000 $60,000 Tax rate 40 percent 35 percent Required rate of return 30 percent 10 percent 13 percent 11 percent Based on these values above, calculate the NPV under these three scenarios. Fill out table below. Pessimistic Most likely Optimistic NPV
