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	-$400	$132	$132	$132	$132	$132	$132	$0

1. 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: $   

2. What is each project's IRR? Do not round intermediate calculations. Round your answers to two decimal places.

   Project A:   %

   Project B:   %

3. 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:   %

1. 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
   23.86

2. Calculate the crossover rate where the two projects' NPVs are equal. Do not round intermediate calculations. Round your answer to two decimal places.

     %

3. 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

A) Using financial ccalculator, to calculate Npv

Project A

Inputs : C0 : -300

C1 : -387 Frequency : 1

C2 : -193. Frequency : 1

C3 : -100. Frequency : 1

C4 : 600. Frequency : 2

C5 : 850. Frequency : 1

C6 : -180. Frequency : 1

I = 13%

Npv = compute

We get, NPV = $ 162.48

Project B

Inputs: C0 : -400

C1 : 132. Frequency : 6

C2 : 0. Frequency : 1

I : 13%

Npv = compute

We get, Npv = $ 127.68

B) Using financial calculator , to calculate irr

Project A

Inputs : C0 : -300

C1 : -387. Frequency : 1

C2 : -193. Frequency.: 1

C3 : -100. Frequency : 1

C4 : 600. Frequency : 2

C5 : 850. Frequency : 1

C6 : -180. Frequency : 1

Irr : compute

We get, Irr = 18.10%

Project B

Inputs : C0 : -400

C1 : 132. Frequency : 6

C2 : 0. Frequency : 1

Irr : compute

We get, Irr = 23.86%

C) project A

Present value of negative cash flow

= 300 + 387 / (1+0.13)^1 + 193 / (1+0.13)^2 + 100/ (1+0.13)^3 + 180 / (1+0.13)^7

= 300 + 387/1.13 + 193/ 1.2769 + 100 / 1.4429 + 180 / 2.3526

= 300+ 342.48 + 151.15 + 69.30 + 76.51

= 939.44

Future value of positive cashflow

= 600 (1+0.13)^3 + 600(1+0.13)^2 + 850(1+0.13)^1

= 600 (1.4429) + 600 (1.2769) + 850 × 1.13

= 865.74 + 766.14 + 960.50

= 2,592.38

Mirr = ( future value of positive cash flow / present value of negative cash flow) ^ 1/n - 1

= ( 2,592.38 / 939.44) ^1/7 - 1

= (2.7595) ^ 0.1429 -1

= 1.1560 - 1

= 0.1560 or  15.60%

Project B

Present value of cash flow = 400

Future value of cash flow

= 132(1+0.13)^6 + 132(1+0.13)^5 + 132(1+0.13)^4 + 132(1+0.13)^3 + 132(1+0.13)^2 + 132(1+0.13)

= 132 (2.082) + 132 (1.8424) + 132 (1.6305) + 132 (1.4429) + 132 (1.2769) + 132 (1.13)

= 274.824 + 243.20 + 215.23 + 190.46 + 168.55 + 149.16

= 1,241.424

Mirr = ( future value / present value ) ^ 1/n - 1

= (1,241.424 / 400 ) ^ 1/7 -1

= (3.1036) ^ 0.1429 - 1

= 1.1757 - 1

= 0.1757 or 17.57%