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this question is from Fundamentals of Financial Management #15 page 413

11-17 CAPITAL BUDGETING CRITERIA A company has an 11% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following cash flows:

a. What is each projects NPV?

b. What is each projects IRR?

c. What is each projects MIRR? (Hint: Consider Period 7 as the end of Project Bs life.)

d. From your answers to parts a, b, and c, which project would be selected? If the WACC was 18%, which project would be selected?

e. Construct NPV profiles for Projects A and B.

f. Calculate the crossover rate where the two projects NPVs are equal.

g. What is each projects MIRR at a WACC of 18%?

lculate each project's NPV and IRR. raph the NPV profiles for Plan A and Plan B and approximate the crossover rate. alculate the crossover rate where the two projects' NPVs are equal. Thy is NPV better than IRR for making capital budgeting decisions that add to shareholder value? PITAL BUDGETING CRITERIA A company has an 11% WACC and is considering two mutually exclusive investments (that cannot t 1 2 3 4 + + + Project A -$300 - $387 - $193 -$100 $600 $600 $850 - $180 Project B -$405 $134 $134 $134 $134 $134 $134 $0 0 5 6 7 What is each project's NPV? What is each project's IRR? What is each project's MIRR? (Hint: Consider Period 7 as the end of Project B's life.) From your answers to parts a, b, and c, which project would be selected? If the WACC was 18%, which project would be selected? Construct NPV profiles for Projects A and B. Calculate the crossover rate where the two projects' NPVs are equal. What is each project's MIRR at a WACC of 18%? NPV AND IRR A store has 5 years remaining on its lease in a mall. Rent is $2,000 per month, 60 payments remain, and the next payment is property in a year and wants rent at that time to be high so that the property will appear more valuable. Therefore, the store has been offered a "grea mew lease calls for no rent for 9 months, then payments of $2.600 per month for the next 51 months. The lease cannot be broken and the store's WAC a. Should the new lease be accepted? (Hint: Make sure you use 1% per month.) honour lease payment what new lease payment would make the store owner in 117 ts' NPVs are equal. oudgeting decisions that add to shareholder value? has an 11% WACC and is considering two mutually exclusive investments that cannot b 0 1 2 4 5 6 + + Project A -$300 - $387 -$193 -$100 $600 $600 $850 - $180 Project B -$405 $134 $134 $34 $134 5134 $34 so er Period 7 as the end of Project B's life.) ch project would be selected? If the WACC was 18%, which project would be selected? B. What is each project's NPV? What is each project's IRR? . What is each project's MIRR? (Hint: Consider Period 7 as the end of Project B's life.) . From your answers to parts a, b, and c, which project would be selected? If the WACC was 18%, which project would be e. Construct NPV profiles for Projects A and B. f. Calculate the crossover rate where the two projects' NPVs are equal. g. What is each project's MIRR at a WACC of 18%? 3 NPV AND IRR A store has 5 years remaining on its lease in a mall. Rent is $2,000 per month, 60 payments remain, and th