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 -$20 $5 $9 $12
Project B -$13 $8 $7 $3
  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 3.86%.)
    -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 3.86%.)
    -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 3.86%.)

Solutions

Expert Solution

For part C, select the project that has higher NPV, given that project would add higher value to the firm. We should always select the project with higher and positive NPV.


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