Question

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

0

1.

2

3

Project A	-$35	$4	$14	$20
Project B	-$15	$8	$5	$4

1. What are the projects' NPVs assuming the WACC is 5%? Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to two decimal places.

   Project A:    $   million

   Project B:    $   million

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

   Project A:  $   million

   Project B:  $   million

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

   Project A:  $   million

   Project B:  $   million

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

   Project A:    %

   Project B:    %

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

   Project A:    %

   Project B:    %

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

   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 1.66%.)

   --Select-Project A Project B Neither

   If the WACC was 10% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 1.66%.)

   -Select-Project A Project B Neither

4. If the WACC was 15% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 1.66%.)

   -Select-Project A Project B Neither

Answer 1

	Rate	NPV-A	NPV-B
a	5%	($1.22)	$0.61
	10%	($4.77)	($0.59)
	15%	($7.79)	($1.63)

b	Rate	IRR-A	IRR-B
	5%	3.47%	7.45%
	10%	3.47%	7.45%
	15%	3.47%	7.45%

(IRR is same irrespective of the rate)

c: Select the project with higher NPV and which is not negative

Rate	NPV-A	NPV-B	Select
5%	($1.22)	$0.61	B
10%	($4.77)	($0.59)	Neither
15%	($7.79)	($1.63)	Neither

Workings