Your division is considering two projects. Its WACC is 10%, and the projects' after-tax cash flows (in millions of dollars) would be as follows: Time 0 1 Expected Cash Flows Project A Project B (830) (530) S5 $20 S10 $10 $15 S8 S20 S6 2 3 4 1. Calculate the projects' NPV, IRRs, MIRRs, regular paybacks, and discounted paybacks. WACC 10% NPVA NPV) We find the internal rate of return with Excel's IRR function: IRRA IRRE We find the modified internal rate of return with Excel's MIRR function using the 10% WACC: MIRRA MIRRE 0 (30) 1 5 2 10 3 15 4 20 0 (30) 1 20 2 10 3 8 4. 6 Time period: Cash flow: 2 Cumulative cash flow: 3 Payback: 5 Project B 7 Time period: 3 Cash flow: 3 Cumulative cash flow: O 1 Payback 2 3 Project A 4 Time period: 5 Cash flow: 6 Disc, cash flow: 7 Disc. cum, cash flow: -8 -9 Discounted Payback: 50 51 Project B 52 Time period: 53 Cash flow: 54 Dise, cash flow: 55 Disc. cum. cash flow: 0 1 5 2 10 (30) 3 15 4 20 3 4 0 (30) 1 20 2 10 8 Discounted Paybacks: G H 3 22. If the two projects are independent, which project(s) should be chosen? 1 2 3 4 3. If the two projects are mutually exclusive and the WACC is 10%, which project() should be chosen? 5 6 7 8 9 4. If the WACC was 5%, would this change your recommendation if the projects were mutually exclusive? 0 1 #2 3 74 5. If the WACC was 15%, would this change your recommendation? Explain your answers. 75 76 77 78 79 6. If the payback was the only method a firm used to accept or reject projects, in your opinion how would you 80 determine what is a "good" payback period? 81 82 83 RA 7. What's the difference between the IRR and the MIRR, and which generally gives a better idea of the rate of return on the investment in a project? Explain. 8. Why do most academics regard the NPV as being the single best criterion and better than the IRR? Why do companies still calculate IRRS? +