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Consider the following projects, x and Y where the firm can only choose one. Project x costs $ 1 2 0 0 and has cash
Consider the following projects, and where the firm can only choose one. Project costs $ and has cash flows of $$$$$ in each of the next yrars. Project also costs $ and generates cash flows of $$$$ for the next years, respectively. WACC
A Draw the timelines for both projects: and
B Calculate the projects' NPVs IRRs, payback periods.
C If the two projects are independent, which projects should be chosen?
D If the two projects are mutually exclusive, which projects should be chosen?
E Plot NPV profiles for the two projects. Identify the projects' IRRs on the graph.
F If the WACC were percent, would this change your recommendation if the projects were mutually exclusive? If the WACC were percent, would this change your recommendation? Explain your answers.
G There is a "crossover rate" of Xs and Ys NPV curves, and mark it on the graph with Point O Explain in words what this rate is and how it affects the choice between mutually exclusive projects.
H If it possible for conflicts to exist between the NPV and the IRR when independent projects are being evaluated? Explain your answer.
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