Silkwood Power Company is considering two projects with the following predicted cash flows:

These two projects are mutually exclusive.

a. Construct a chart showing the NPV profiles of both projects. (This will be shown on "P6 Formulas and Graph").

b. Using only NPV analysis, which project(s) would be accepted if the companys cost of capital were 6 percent?

c. What are the IRRs of each project? Which project should be chosen using IRR as the selection criterion and a cost of capital of 6 percent?

d. At a cost of capial of 6%, Is there a conflict in ranking using both NPV and IRR analysis? Explain.

e. Using only NPV analysis, which project(s) would be accepted if the companys cost of capital were 15 percent?

f. Which project should be chosen using IRR as the selection criterion and a cost of capital of 15 percent?

g. At a cost of capial of 15%, Is there a conflict in ranking using both NPV and IRR analysis? Explain.

h. At what cost of capital would Silkwood value each project equally? How do you know?

i. If both projects are independent of each other, at what cost of capital would the hydroelectric project become unacceptable? How do you know?

j. If both projects are independent of each other, at what cost of capital would the geothermal project become unacceptable? How do you know?

Discount Rate Project 1 Cash Flows NPV Project 1 Cash Flows Discount Rate Project 2 Cash Flows $0.00 NPV B5000 NPV HNUM! Project 2 Cash Flows NPV #NUM! Discount Rate 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00% 0.00 0.000 0.00 0.00 0.00 0.00 0.00 0.00 NPV Project 1 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 NPV Project 2 NPV Profiles -Discount Rate NPV Project 1 NPV Project 2