Question
Please use two decimal places on your percentages. Your firm is evaluating two projects, A and B.You have developed the cash flow charts for the
Please use two decimal places on your percentages.
Your firm is evaluating two projects, A and B.You have developed the cash flow charts for the two projects (see attached Excel sheet in this document). The weighted average cost of capital for the firm is 8%.
a.Using Excel, you need to calculate the NPV, IRR and MIRR for both projects.
b.If the projects are mutually exclusive, what is your accept/reject decision under each of the techniques.
c.Using Excel, plot the NPV profile and identify the crossover rate. What does this information tell you as the financial manager?
Project A
0
1
2
3
Cost of New Machine
-$350,000.00
Net Salvage on Old Machine
$40,775.00
Change in WC
$7,000.00
Net Initial Outflow
-$302,225.00
Change in Sales
$95,000.00
$95,000.00
$95,000.00
less change in costs
$10,000.00
$10,000.00
$10,000.00
less deprec change
-$96,250.00
-$157,500.00
-$52,500.00
Earnings before tax
$8,750.00
-$52,500.00
$52,500.00
Change in Taxes
-$2,625.00
$15,750.00
-$15,750.00
Net Earnings
$6,125.00
-$36,750.00
$36,750.00
Add back depreciation
$96,250.00
$157,500.00
$52,500.00
Operating Cash Flow
$102,375.00
$120,750.00
$89,250.00
Net Salvage Value on New Machine
56,350.00
Return of Net Working Capital
-7,000.00
Total Terminal CF
$49,350
Net Project CF
($302,225)
$102,375.00
$120,750.00
$138,600
Project B
0
1
2
3
Cost of New Machine
-$250,000.00
Net Salvage on Old Machine
$32,200.00
Change in WC
$3,000.00
Net Initial Outflow
-$214,800.00
Change in Sales
$90,000.00
$90,000.00
$90,000.00
less change in costs
-$5,000.00
-$5,000.00
-$5,000.00
less deprec change
-$68,500.00
-$112,500.00
-$37,500.00
Earnings before tax
$16,500.00
-$27,500.00
$47,500.00
Change in Taxes
-$4,950.00
$8,250.00
-$14,250.00
Net Earnings
$11,550.00
-$19,250.00
$33,250.00
Add back depreciation
$68,500.00
$112,500.00
$37,500.00
Operating Cash Flow
$80,050.00
$93,250.00
$70,750.00
Net Salvage Value on New Machine
26,250.00
Return of Net Working Capital
-3,000.00
Total Terminal CF
$23,250
Net Project CF
($214,800)
$80,050.00
$93,250.00
$94,000
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Understanding Financial Accounting
Authors: Christopher D. Burnley
2nd Canadian Edition
9781119406921
