Question
Capital budgeting criteria A company has a 11% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following cash flows:
Capital budgeting criteria
A company has a 11% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following cash flows:
Year 0 1 2 3 4 5 6 7
| Project A | -$300 | -$387 | -$193 | -$100 | $600 | $600 | $850 | -$180 |
| Project B | -$400 | $135 | $135 | $135 | $135 | $135 | $135 | $0 |
What is each project's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations. Project A $ ________ Project B $ ________
What is each project's IRR? Round your answer to two decimal places.
Project A ________ % Project B ________%
What is each project's MIRR? (Hint: Consider Period 7 as the end of Project B's life.) Round your answer to two decimal places. Do not round your intermediate calculations.
Project A ________% Project B ________%
From your answers to parts a-c, which project would be selected? Answwer: Project A If the WACC was 18%, which project would be selected? Answer: Project B
Construct NPV profiles for Projects A and B. Round your answers to the nearest cent. Do not round your intermediate calculations. Negative value should be indicated by a minus sign.
| Discount Rate | NPV Project A | NPV Project B |
| 0% | $ ________ | $ ________ |
| 5 | $ ________ | $ ________ |
| 10 | $ ________ | $ ________ |
| 12 | $ ________ | $ ________ |
| 15 | $ ________ | $ ________ |
| 18.1 | $ ________ | $ ________ |
| 23.65 | $ ________ | $ ________ |
Calculate the crossover rate where the two projects' NPVs are equal. Round your answer to two decimal places. Do not round your intermediate calculations. ________%
What is each project's MIRR at a WACC of 18%? Round your answer to two decimal places. Do not round your intermediate calculations.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Public Finance In A Changing World
Authors: Peter Birch Sorensen
1998th Edition
0333682211, 978-0333682210
