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In: Finance

HW 12, Problem 1, parts a and b You are considering an investment in two projects,...

HW 12, Problem 1, parts a and b

  1. You are considering an investment in two projects, A and B. Birth projects will cost $115,000, and the projected cash flows are as follows:

Year

Project A

Project B

1

$7,188

$51,750

2

21,562

38,812

3

40,250

28,750

4

50,315

21,563

5

57,500

14,375

  1. Assuming that the WACC is 9.4%, calculate the payback period, discounted payback period, NPV, PI, IRR and MIRR. If the projects are mutually exclusive, which project should be selected?
  2. Create an NPV profile chart for projects A and What is the exact crossover rate for these two projects?

Solutions

Expert Solution

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

A B
Payback 3.91 2.85
DPB 4.94 4.45
NPV 139097.42 137752.93
PI 1.11 1.09

Workings

Year Project A Cumulative CF DCF Cumulative DCF Project B Cumulative CF DCF Cumulative DCF
0 -115000.00 -115000.00 -115000.00 -115000.00 -115000.00 -115000.00 -115000.00 -115000.00
1 7188.00 -107812.00 6417.86 -108582.14 51750.00 -63250.00 46205.36 -68794.64
2 21562.00 -86250.00 17189.09 -91393.05 38812.00 -24438.00 30940.69 -37853.95
3 40250.00 -46000.00 28649.15 -62743.89 28750.00 4312.00 20463.68 -17390.27
4 50315.00 4315.00 31976.09 -30767.80 21563.00 25875.00 13703.68 -3686.60
5 57500.00 61815.00 32627.04 1859.24 14375.00 40250.00 8156.76 4470.17

jeff jeffy answered 4 hours ago
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