Part 2 -

The second model is for a project for Gardial Fisheries. Gardial Fisheries is considering two mutually exclusive investments. The projects expected net cash flows are as follows: Expected Net Cash Flows for the 7 year Project are:

Project A $375, 300, 200, 100, 600, 600, 926 and, 200

Project B $575, 190, 190, 190, 190, 190, 190 and, 0

If each projects cost of capital is 12%, which project should be selected? If the cost of capital is 18%, what project is the proper choice?

Construct NPV profiles for Projects A and B.

What is each projects IRR?

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

What is each projects MIRR at a cost of capital of 12%? At r 18%? (Hint: Consider Period 7 as the end of Project Bs life.)

What is the regular payback period for these two projects? (Hint: Excels PERCENTRANK function may not work correctly for Project A because it has nonnormal cash flows.)

At a cost of capital of 12%, what is the discounted payback period for these two projects?

What is the profitability index for each project if the cost of capital is 12

3 Gardial Fisheries is considering two mutually exclusive investments. The projects' expected net cash flows are as follows: Net Cash Flows Project A Project B ($375) ($300) ($200) ($100) ($575) $190 $190 $190 $190 $190 $190 10 12 13 $926 ($200) 15 16 17 18 19 20 21 a. If each project's cost of capital is 12%, which project should be selected? choice? If the cost of capital is 18%, what project is the proper 12% cost of ca al 18% cost of capital Use Excel's NPV function as explained in this chapter's Tool Kit Note that the range does not include the costs, which are added separately WACC 12% 18% WACC = NPV A- NPV B- 23 NPVA- 25 NPVB 26 27 At a cost of capital of 12%, Project A should be selected. However, if the cost of capital rises to 18%, then the choice is reversed, and 28 Project B should be accepted Construct NPV profiles for Projects A and B. 32 33 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 35 Project A Project B 38 10% 12% 14% 16% 18% 50 51 54 c. What is each project's IRR 56 We find the internal rate of return with Excel's IRR function