eBook Problem Walk-Through

A company has an 11% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following cash flows:

0

1

2

3

4

5

6

7

Project A	-$300	-$387	-$193	-$100	$600	$600	$850	-$180
Project B	-$405	$131	$131	$131	$131	$131	$131	$0

1. What is each project's NPV? Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest cent.

   Project A: $

   Project B: $

2. What is each project's IRR? Do not round intermediate calculations. Round your answers to two decimal places.

   Project A: %

   Project B: %

3. What is each project's MIRR? (Hint: Consider Period 7 as the end of Project B's life.) Do not round intermediate calculations. Round your answers to two decimal places.

   Project A: %

   Project B: %

4. From your answers to parts a-c, which project would be selected?

   -Select-Project AProject BItem 7

   If the WACC was 18%, which project would be selected?

   -Select-Project AProject BItem 8

5. Construct NPV profiles for Projects A and B. If an amount is zero, enter 0. Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest cent.

   Discount Rate	NPV Project A	NPV Project B
   0%	$	$
   5
   10
   12
   15
   18.1
   23.01

6. Calculate the crossover rate where the two projects' NPVs are equal. Do not round intermediate calculations. Round your answer to two decimal places.

   %

7. What is each project's MIRR at a WACC of 18%? Do not round intermediate calculations. Round your answers to two decimal places.

   Project A: %

   Project B: %