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	-$405	$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:   %

4. From your answers to parts a-c, which project would be selected?

   -Select-Project AProject BItem 7

   If the WACC was 18%, which project would be selected?

   -Select-Project AProject BItem 8

5. 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
   23.33

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

     %

7. 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:   %

please write answers easy to understand

Answer 1

		Expected net cash flows
	Time	Project A	Project B
	0	($300)	($405)
	1	($387)	$132
	2	($193)	$132
	3	($100)	$132
	4	$600	$132
	5	$600	$132
	6	$850	$132
	7	($180)	$0
a. Computation of NPV with WACC of 13%
@ a 13% cost of capital
WACC =	13%
NPV A =	$162.48
NPV B =	$122.68
b.   What is each project's IRR?
We find the internal rate of return with Excel's IRR function:
IRR A =	18.10%
IRR B =	23.33%
c. MIRR
	@ a 13% cost of capital
	MIRR A =	15.60%
	MIRR B =	17.35%
d) Selection
Project A should be selected.
If WACC is 18% than project B should be selected
e) NPV profile
Discount Rate	NPV Project A	NPV Project B
0%	$890.00	$387.00
5%	$540.09	$264.99
10%	$283.34	$169.89
12%	$200.41	$137.71
15%	$92.96	$94.55
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