Gardial Fisheries is considering two mutually exclusive investments. The projects cash flows are as follows:

Time Project A Project B

0 -$375 -$575

1 -$30 0 $190

2 -$200 $190

3 -$100 $190

4 $600 $190

5 $600 $190

6 $926 $190

7 -$200 $0

A. If each project's cost of capital is 11%, which project should be selected? If the cost of capital is 17%, what project is the proper choice?

@11% Cost of Capital :

NPV_a = ?

NPV_{b =?}

@17% Cost of Capital?

NPV_a = ?

NPV_b =?

B. Construct NPV profiles for Projects A and B.

Before we can graph the NPV profiles for these projects, we must create a data table of project NPVs relative to differing costs of capital.

Most project graph, see attachment.

C. What is each project's IRR?

D. What is the crossover rate, and what is its significance?

Time	Cash Flow Differential
0
1
2
3
4
5
6
7

Crossover rate? E. What is each projects MIRR at cost of capital of 11%? At r=17%? F. What is the regular payback period for these two projects? G. At a cost of capital of 11%, what is the discounted payback period for these two projects? H. What is the probability index for each project if the cost of capital is 115? I know this is a lot of information, I posted the excel file as well. I really appreciate the help on this because I am very lost and would like to better understand this information. 11/8/2015 Chapter: Problem: 10 23 Gardial Fisheries is considering two mutually exclusive investments. The projects' expected net cash flows are as follows: Time 0 1 2 3 4 5 6 7 Expected Net Cash Flows Project A Project B ($375) ($575) ($300) $190 ($200) $190 ($100) $190 $600 $190 $600 $190 $926 $190 ($200) $0 a. If each project's cost of capital is 11%, which project should be selected? If the cost of capital is 17%, what project is the proper choice? @ 11% cost of capital @ 17% cost of capital WACC = WACC = NPV A = $242.65 NPV A = Use Excel's NPV function as explained in 17% this chapter's Tool Kit. Note that the range does not include the costs, which are $41.25 added separately. NPV B = $206.13 NPV B = $91.41 11% b. Construct NPV profiles for Projects A and B. Before we can graph the NPV profiles for these projects, we must create a data table of project NPVs relative to differing costs of capital. Project A Project B 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24% 26% 28% 30% Project A Project B c. What is each project's IRR? We find the internal rate of return with Excel's IRR function: IRR A = IRR B = Note in the graph above that the X-axis intercepts are equal to the two 18.64% projects' IRRs. 23.92% d. What is the crossover rate, and what is its significance? Time 0 1 2 3 4 5 6 7 Cash flow differential $200 ($490) ($390) ($290) $410 $410 $736 ($200) Crossover rate = 13.14% The crossover rate represents the cost of capital at which the two projects' NPV is equal to: e. What is each project's MIRR at a cost of capital of 11%? At r = 17%? Hint: note that B is a 6-year project. @ 11% cost of capital @ 17% cost of capital MIRR A = MIRR B = MIRR A = MIRR B = f. What is the regular payback period for these two projects? Project A Time period Cash flow Cumulative cash flow Payback Project B 0 (375) 1 (300) 2 (200) 3 (100) 4 600 5 $600 6 $926 7 ($200) Time period Cash flow Cumulative cash flow Payback g. 0 (575) 1 190 2 190 3 190 4 190 5 $190 6 $190 7 $0 At a cost of capital of 11%, what is the discounted payback period for these two projects? WACC = 11% Project A Time period Cash flow Disc. cash flow Disc. cum. cash flow Discounted Payback 0 (375) 1 (300) 2 (200) 3 (100) 4 600 5 $600 6 $926 7 ($200) 0 (575) 1 190 2 190 3 190 4 190 5 $190 6 $190 7 $0 Project B Time period Cash flow Disc. cash flow Disc. cum. cash flow Discounted Payback h. What is the profitability index for each project if the cost of capital is 11%? PV of future cash flows for A: PI of A: PV of future cash flows for B: PI of B