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West Coast Company is considering two mutually exclusive projects, the project's expected net cash flows are as follows: Expected Cash Flows Year Proj. A Proj.
West Coast Company is considering two mutually exclusive projects, the project's expected net cash flows are as follows: Expected Cash Flows
Year Proj. A Proj. B
$$
$ $
$ $
$ $
$ $
$ $
Required Rate of Return
a points Calculate each project's IRR IRR should be denoted as a percentage number, and two numbers are kept after the decimal point
Proj.As IRR
Proj. Ns IRR
b points Caluclate each project's NPV
Proj. As NPV
Proj. Bs NPV
c points Calculate the crossover rate of these two projects.
Year Proj. A Proj. B Cash Flow Difference between Proj. A & Proj. B
Crossover rate
d points Draw the two project's NPV profile
Hint: you can assume the required rate of return on the projects ranges from to find NPV of each project under each required rate of return, then draw the chart based on such information.
Use vertical axis to denote bond price, and horizontal axis to denote bond yield.
Required rate of return Proj. As NPV Proj. Bs NPV Chart:
INPUT DATA:
Base price $
Modifications $
Increase in NWC $
Increase in sales revenue $
Increase in Operating costs $
Salvage value $
Required rate of return
Tax rate
MACRS class life years
Useful life years
a points Estimate the initial investment outlay
Base price
Modification
Increase in NWC
Initial investment outlay
b points Estimate dereciation expense and ending book value each year.
Depreciation Basis
Year MACRS Rate Depreciation Ending Book Value
c points Estimnate the net salvage value
Cash flow from sale of asset
Tax effect of sale
Net salvage value cash flow
d points Estimate the total aftertax net cash flow per year.
Year
Increase in Sales revenue $ $ $ $ $ $ $
Increase in Operating costs $ $ $ $ $ $ $
Deprecation on new asset $
Net operating income $
Taxes $
Net income $
Deprecation $
Incremental operating cash flow $
Return of NWC $ $ $ $ $ $ $
Net Salvage value $ $ $ $ $ $
Net aftertax cash flow
e points Calculate the project's NPV and IRR.
NPV
IRR
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