eBook Problem Walk-Through

Problem 11-17 Capital budgeting criteria

A company has a 13% 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	-$400	$131	$131	$131	$131	$131	$131	$0

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? -Select-Project AProject BItem 7 If the WACC was 18%, which project would be selected? -Select-Project AProject BItem 8

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	$	$
23.54	$	$

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. Project A % Project B %