Capital Budgeting

BioMed Engineering is considering two mutually exclusive investments. The projects' expected net cash flows are as follows:

Expected Net Cash Flows

Time Project A Project B

0 ($405) ($705)

1 ($285) $200

2 ($205) $205

3 ($105) $210

4 $605 $215

5 $650 $220

6 $925 $225

7 ($200) $230

In your report, identify which project would be selected (assuming they are mutually exclusive) for each investment criterion. Note that cash outflows (costs) are given in parenthesis. Employ the Excel file to answer the following questions.

Part 1: Net Present Value

C. Construct NPV profiles (a data table of project NPVs for different costs of capital) using the Excel NPV function for Projects A and B.

D. Graph both NPV profiles in a single plot with NPV on the y-axis and cost of capital on the x-axis (label the x-axis, y-axis, chart title, and axis). Use a scatter with straight lines chart type. (7 points)

C) NPV Profiles

Cost of Capital	Project A	Project B
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
15%

D) NPV Profiles Graph