Question
Need solution and the explanation to draw graph in excel format You are a financial analyst for the Waffle Company. The director of capital budgeting
Need solution and the explanation to draw graph in excel format
You are a financial analyst for the Waffle Company. The director of capital budgeting has asked you to analyze two proposed capital investments, Projects A and B. Each project has a cost of $50,000, and the cost of capital for each is 10%.
The projects expected net cash flows are as follows:
| Expected Net Cash Flows | |
Year | Project A | Project B |
0 | ($50,000) | ($50,000) |
1 | 25,000 | 15,000 |
2 | 20,000 | 15,000 |
3 | 10,000 | 15,000 |
4 | 5,000 | 15,000 |
5 | 5,000 | 15,000 |
How might a change in the cost of capital produce a conflict between the NPV and IRR rankings of these two projects? Would this conflict exist if r were 6%? (Hint: Plot the NPV profiles.)
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