Question
The following are the cash flows for two mutually exclusive projects under consideration. The projects are considered average risk projects. The companys WACC is 16
The following are the cash flows for two mutually exclusive projects under consideration. The projects are considered average risk projects. The companys WACC is 16 percent. Year 0 Year 1 Year 2 Year 3 Year 4 Cash flows of A (14,000) 10,000 8,000 6,000 3,000 Cash flows of B (12,500) 4,000 6,000 9,000 9,750 a. Determine the IRR values for the two projects. b. Draw a figure of NPV profiles and show which project creates more value at the firms cost of capital. (Figures dont have to be exact, use discount rates of 10%, 15%, 20%, and 25%. Consistency in the graph expected.) c. Determine the exact cross-over rate.
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