finance practice problems

excel

A company is considering two mutually exclusive expansion plans. Plan A requires a $40 million expenditure on a large-scale integrated plant that would provide expected cash flows of $6.39 million per year for 20 years. Plan B requires a $12 million expenditure to build a somewhat less efficient, more labor-intensive plant with an expected cash flow of $2.69 million per year for 20 years. The firm's WACC is 10%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. X Open spreadsheet a. Calculate each project's NPV. Round your answers to two decimal places. Do not round your intermediate calculations. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Plan A: $ 20.22 million Plan B: $ 18.02 million Calculate each project's TRR. Round your answer to two decimal places Plan : Plan B: b. By graphing the NPV profiles for Plan A and Plan B, approximate the crossover rate to the nearest percent. c. Calculate the crossover rate where the two projects' NPVs are equal. Round your answer to two decimal places. d. Why is NPV better than IRR for making capital budgeting decisions that add to shareholder value? The input in the box below will not be graded, but may be reviewed and considered by your instructor NPV Profiles SLOO 8 8 8 8 6 5 8 SA 10 S000 Calculation of Crossover Rate: 47 Plan $40.00 $8.39 2.60 $200 12.00 $2.00 12.692.69 260 49 261 262 Plan B -$12.00 51 Project Delta ANANA NA Formulas 55 Crossover Rate RR Sheet1 2 C D E F G H I NPV profiles WACC 10.00% Dollars in Million Plan $6.39 $6.39 $6.39 $6.39 $539 539 5.39 39 39 39 39 39 Plan B $12.00 $2.89 $2.69 $2.69 $2.89 $2.89 $2.69 $2.69 $2.89 $2.69 $2.00 0 Project NPV Calculati 1 NPVA 2 NPV, INA ANA 14 Project IRR Calculation IRR 36 18 NPV Profiles 19 Discount Rate $0.00 00 $0.00 100 $0.00 $0.00 $0.00 $0.00 5000 $0.00 $0.00 Sheet1