Question

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

0

1

2

3

Project A	-$16	$7	$9	$10
Project B	-$26	$14	$20	$11

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.

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.

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.

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

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

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

If the WACC was 5% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 48.57%.)

If the WACC was 10% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 48.57%.)

If the WACC was 15% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 48.57%.)

Thank you.

Answer 1

For part c, select the project which has higher (and positive) NPV, since that would add maximum value to the firm.