Question

A company has a 13% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following cash flows: 0 1 2 3 4 5 6 7 Project A -$300 -$387 -$193 -$100 $600 $600 $850 -$180 Project B -$405 $133 $133 $133 $133 $133 $133 $0 What is each project's NPV? Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest cent. Project A: $   Project B: $   What is each project's IRR? Do not round intermediate calculations. Round your answers to two decimal places. Project A: % Project B: % What is each project's MIRR? (Hint: Consider Period 7 as the end of Project B's life.) Do not round intermediate calculations. Round your answers to two decimal places. Project A: % Project B: % From your answers to parts a-c, which project would be selected? -Select-Project AProject BItem 7 If the WACC was 18%, which project would be selected? -Select-Project AProject BItem 8 Construct NPV profiles for Projects A and B. If an amount is zero, enter 0. Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest cent. Discount Rate NPV Project A NPV Project B 0% $        $        5 10 12 15 18.1 23.65 Calculate the crossover rate where the two projects' NPVs are equal. Do not round intermediate calculations. Round your answer to two decimal places. % What is each project's MIRR at a WACC of 18%? Do not round intermediate calculations. Round your answers to two decimal places. Project A: % Project B: %

Answer 1

Based on the given data, pls find below steps, workings and answers:

a) NPV of Project A is $ 162.48 and Project B is 126.67

b) IRR of Project A is 18.10% and Project B is 23.65%

c) MIRR of Project A is 15.60% and Project B is 17.48%

d) Based the answers from (a) to (c), Project A is recommeded as the NPV of the Project is higher;

If the WACC is 18%, then NPV of Project A is $ 2.66 and Project B is $ 60.18; Hence, in this case, Project B is recommended to be selected.

e) Sensitivity Matrix is provided in the workings below

f) Crossover rate for these two projects is 14.72%

g) With 18% WACC,  MIRR of Project A is 18.05% and Project B is 20.36%

Computation of IRR: This can be computed using formula in Excel = IRR("range of cashflows", discounting factor%);

Computation of MIRR: This can be computed using formula in Excel = MIRR("range of cashflows", discounting factor%, reinvestment factor%); Here, both discounting factor % and reinvestment factor% are considered same.

Computation of Net Present Value (NPV) based on the Discounted Cash flows; The Discounting factor is computed based on the formula: For year 0, the discounting factor is 1; For Year 1, it is computed as = Year 0 factor /(1+discounting factor%) ; Year 2 = Year 1 factor/(1+discounting factor %) and so on;

Next, the cashflows need to be multiplied with the respective years' discounting factor, to arrive at the discounting cash flows;

The total of all the discounted cash flows is equal to its respective Project NPV of the Cash Flows;