Question

Company B’s WACC is 10%. It has three Projects it can choose from: Projects X, Y and Z. The following information is available regarding Project X.
Years 0 1 2 3
Project X cash flows -$100 80 60 40

And the following information is available regarding Projects Y and Z.
Criteria Project Y Project Z
NPV $40 $67
MIRR 10% 20%
IRR 2.0% 18.7%
Regular Payback 2.23 years 1.77 years

5) Assuming the three projects X, Y & Z are independent, based on NPV criteria we choose: *

6) Assuming the three projects X, Y & Z are mutually exclusive, based on NPV criteria we choose: *

7) Assuming the three projects X, Y & Z are independent, based on MIRR criteria we choose: *

8) Assuming the three projects X, Y & Z are mutually exclusive, based on MIRR criteria we choose: *

Answer 1

first lets calculate NPV and MIRR of project X

NPV:

MIRR:

so NPV of project X = $52.37

MIRR = 27%

5)

if the projects are independent, we can choose the projects with positive NPV's since here all the projects have positive NPV's we can choose All three projects. i.e.,Project X , Y , Z.

6)

if the projects are mutually exclusive then only the project highest NPV can be selected.

since project Z has high NPV it should be selected.

7)

in case of independent, projects with MIRR greater than WACC can be chosen

since here all projects have MIRR greater than WACC all three projects can be selected

8)

in case of mutually exclusive projects , project with high MIRR can be selected. so answer is Project X.

(basically MIRR is not the criteria to select betwen projects because there may be conflict due to different size of the projects.)