Capital Budgeting Wenling Consulting Services is considering an eight year investment in two projects, A and B. 2 3 Both projects will have initial outlay, $120,000, and the terminal cash flow, $11,000. The annual after-tax operating cash flows are as follows: Year Project A Project B 31,000.00 $ 28,700.00 $ 23,440.00 $ 23,200.00 $ 21,000.00 $ 19,900.00 $ 18,900.00 $ 16,500.00 $ 19,000.00 19,500.00 3 $ 22,700.00 4 $ 24,300.00 27,000.00 _1 27,600.00 L2 28,000.00 29,000.00 .5 Assume that Wenling's WACC is 10% 6 1. Calculate the NPV, PI, IRR, and MIRR. If the projects are mutually exclusive, which project should be selected? L7 8 2. Create an NPV profile chart for projects A and B. What is the exact crossover rate for these two projects? .9 20 3. Create a scenario analysis showing the NPV, IRR, and PI for this investment, assuming the following three scenarios: :1 1) Best Case: initial outlay would be only $100,000 and terminal cash flow would be $25,000 :2 2) Base Case: initial outlay and terminal cash would be exactly as expected. 3) Worst Case: initial outlay would be $170,000 but terminal cash flow would be only $8,000 :4 Capital Budgeting Wenling Consulting Services is considering an eight year investment in two projects, A and B. 2 3 Both projects will have initial outlay, $120,000, and the terminal cash flow, $11,000. The annual after-tax operating cash flows are as follows: Year Project A Project B 31,000.00 $ 28,700.00 $ 23,440.00 $ 23,200.00 $ 21,000.00 $ 19,900.00 $ 18,900.00 $ 16,500.00 $ 19,000.00 19,500.00 3 $ 22,700.00 4 $ 24,300.00 27,000.00 _1 27,600.00 L2 28,000.00 29,000.00 .5 Assume that Wenling's WACC is 10% 6 1. Calculate the NPV, PI, IRR, and MIRR. If the projects are mutually exclusive, which project should be selected? L7 8 2. Create an NPV profile chart for projects A and B. What is the exact crossover rate for these two projects? .9 20 3. Create a scenario analysis showing the NPV, IRR, and PI for this investment, assuming the following three scenarios: :1 1) Best Case: initial outlay would be only $100,000 and terminal cash flow would be $25,000 :2 2) Base Case: initial outlay and terminal cash would be exactly as expected. 3) Worst Case: initial outlay would be $170,000 but terminal cash flow would be only $8,000 :4