Prepare an Excel spreadsheet on your own to present your financial decisions for two projects using NPV, IRR and the Payback Period techniques. You will be graded on your spreadsheet (0-10 pts.)

There are two mutually exclusive projects A and B. Both projects require an investment of $10 million but the timing is different for the rest of the expected net cash flows.

For project A                         For project B

Period 0 =    - $10.0 m           - $10.0 million

Period 1 =          6.5                      3.5 m

Period 2             3.0                       3.5

Period 3 =          3.0                         3.5

Period 4 =          1.5                         3.5

Total Inflow = $14.0m               $14.0m

Prepare 3 possible scenarios for these projects. Use the 5% discount rate (WACC) for a forecast if these are considered low risk projects, 10% if we think they have a normal amount of risk and 15% if we decide that these are high risk projects.

1 – Show the NPV’s, the IRR’s and the Payback Periods for each for each scenario on your spreadsheet.

2 – Assume these projects are mutually exclusive. Which ones would you choose….

1. using a 5% discount rate?
2. using a 10% discount rate?
3. using a 15% discount rate?

3 – Assume the projects are independent, then which ones would you choose at each discount rate in each scenario?

 

( step by step please)