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Your division is considering two investment projects, each of which requires an up-front expenditure of $27 million. You estimate that the cost of capital is
Your division is considering two investment projects, each of which requires an up-front expenditure of $27 million. You estimate that the cost of capital is 10% and that the investments will produce the following after-tax cash flows (in millions of dollars):
Year | Project A | Project B | ||
1 | 5 | 20 | ||
2 | 10 | 10 | ||
3 | 15 | 8 | ||
4 | 20 | 6 |
- What is the regular payback period for each of the projects? Round your answers to two decimal places.
Project A: years
Project B: years
- What is the discounted payback period for each of the projects? Do not round intermediate calculations. Round your answers to two decimal places.
Project A: years
Project B: years
- If the two projects are independent and the cost of capital is 10%, which project or projects should the firm undertake?
The firm should undertake -Select-Project AProject Bboth projectsItem 5 .
- If the two projects are mutually exclusive and the cost of capital is 5%, which project should the firm undertake?
The firm should undertake -Select-Project AProject BItem 6 .
- If the two projects are mutually exclusive and the cost of capital is 15%, which project should the firm undertake?
The firm should undertake -Select-Project AProject BItem 7 .
- What is the crossover rate? Round your answer to two decimal places.
%
- If the cost of capital is 10%, what is the modified IRR (MIRR) of each project? Do not round intermediate calculations. Round your answers to two decimal places.
Project A: %
Project B: %
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