Question

In: Finance

Your division is considering two projects with the following cash flows (in millions): 0 1 2...

Your division is considering two projects with the following cash flows (in millions):

0 1 2 3
Project A -$19 $8 $15 $17
Project B -$17 $11 $8 $6
  1. What are the projects' NPVs assuming the WACC is 5%? Round your answer to two decimal places. Do not round your intermediate calculations. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative value should be indicated by a minus sign.
    Project A    $   million
    Project B    $   million

    What are the projects' NPVs assuming the WACC is 10%? Round your answer to two decimal places. Do not round your intermediate calculations. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative value should be indicated by a minus sign.
    Project A    $   million
    Project B    $   million

    What are the projects' NPVs assuming the WACC is 15%? Round your answer to two decimal places. Do not round your intermediate calculations. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative value should be indicated by a minus sign.
    Project A    $   million
    Project B    $   million

  2. What are the projects' IRRs assuming the WACC is 5%? Round your answer to two decimal places. Do not round your intermediate calculations.
    Project A   %
    Project B   %

    What are the projects' IRRs assuming the WACC is 10%? Round your answer to two decimal places. Do not round your intermediate calculations.
    Project A   %
    Project B   %

    What are the projects' IRRs assuming the WACC is 15%? Round your answer to two decimal places. Do not round your intermediate calculations.
    Project A   %
    Project B   %

  3. If the WACC was 5% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 89.04%.)
    -Select-Project AProject BNeither A, nor BItem 13

    If the WACC was 10% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 89.04%.)
    -Select-Project AProject BNeither A, nor BItem 14

    If the WACC was 15% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 89.04%.)
    -Select-Project AProject BNeither A, nor B

Solutions

Expert Solution

As per rules I am answering the first 4 subparts of the question

The first 4 answers are

1: Project A    $ 16.91 million
Project B    $ 5.92 million

2: Project A    $ 13.44 million
Project B    $ 4.12 million

3: Project A    $ 10.48 million
Project B    $ 25.64 million

4: IRR-A = 42.04%

IRR-B = 24.96%

IRR is the same in all cases irrespective of WACC.

WORKINGS


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