IM Merge & Center - $ -% -21 Clipboard Font Alignment Conditional Format Formatting Table - Syles - Shles Number 339 fax K L M A B Student D E F G H Chapter: 12 10/30/2017 3 Problem: 23 1 5 Gardial Fisheries is considering two mutually exclusive investments. The projects' expected net cash flows are as 6 follows: 7 8 Expected Net Cash Flows 9 Time Project A Project B 10 0 ($375) (5575) 11 1 ($300) 5190 12 2 (5200) 5190 13 3 ($100) $190 14 4 $600 $190 15 5 $600 $190 16 6 $926 $190 7 17 ($200) $0 18 19 a. If each project's cost of capital is 12%, which project should be selected? If the cost of capital is 18%, what project 20 is the proper choice? 21 @ 18% cost of capital 22 @ 12% cost of capital Use Excel's NPV function as explained 23 18% in this chapter's Tool Kit. Note that the 12% WACC - 24 WACC - range does not include the costs, which 25 Build a Model a Ready Search for anything O Paste ce Wrap Text Currency a-A- Merge & Center - $ - % 8-98 Clipboard Font Alignment Conditional Formatas Formatting Table Styles Number F B39 X f K A B D E F G 16 . 6 $926 $190 17 7 (5200) $0 18 19 a. If each project's cost of capital is 12%, which project should be selected? If the cost of capital is 18%, what project 20 is the proper choice? 21 22 @ 12% cost of capital @ 18% cost of capital 23 Use Excel's NPV function as explaid 24 WACC - 12% WACC - 18% in this chapter's Tool Kit. Note that the 25 range does not include the costs, which 26 NPV A= NPVA- are added separately. 27 NPV 28 NPVB- 29 30 At a cost of capital of 12%, Project A should be selected. However, if the cost of capital rises to 18%, then the choice 31 is reversed, and Project B should be accepted. a A Currency Clipboard Merye a Center - Font HA 5 - %) Conditional Format ca Formatting the styles Number Dale Alignment B39 forma 5 B 33 b. Construct NPV profiles for Projects A and B. D E F G H 1 35 Before we can graph the NPV profiles for these projects, we must create a data table of project NPVs relative to 36 differing costs of capital. 37 38 Project A Project B 39 40 0% 41 2% 42 4% 43 6% Project A 44 8% 45 10% 46 12% 47 14% 48 16% Project 49 18% 50 20% 51 22% 52 24% 53 26% 54 55 56 28% 30% 57 c. What is each project's IRR? 58 59 We find the Internal rate of return with Excel's IRR function Build a Model a I Ready Search for anything