Question

A company has a 11% 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	$135	$135	$135	$135	$135	$135	$0

The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.

Open spreadsheet

1. What is each project's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations.

   Project A: $  

   Project B: $  

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

   Project A: %

   Project B: %

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

   _________Project AProject B

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

   _________Project AProject B

5. 
   

6. Construct NPV profiles for Projects A and B. Round your answers to the nearest cent. Do not round your intermediate calculations. Negative value should be indicated by a minus sign.

   Discount Rate	NPV Project A	NPV Project B
   0%	$	$
   5	$	$
   10	$	$
   12	$	$
   15	$	$
   18.1	$	$
   24.29	$	$

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

   %

8. What is each project's MIRR at a WACC of 18%? Round your answer to two decimal places. Do not round your intermediate calculations.

   Project A: %

   Project B: %

Check My Work

Reset Problem

Answer 1

Solution from sub part a to d

Net Present Value (NPV) is a sum of present values of all present and future cash flows, due to the difference in the timming of cash flows they are discounted to the present.

Internal rate of Return (IRR) is the discounted rate where the NPV of a project or asset is equal to zero.

Modified internal rate of return (MIRR) is a modified form of IRR, which eliminates shortcomings of IRR.

d.) On the basis of NPV , IRR and MIRR Project A should be selected as NPV of Project A is greater than Project B. IRR should be positive and MIRR of Project A is more than Project B.

e.) & h.) When WACC = 18%

On the basis of NPV Project B should be selected as NPV of Project B is greater than Project A.

f.)  

Showing NPV Profile through Graph

g.)

Cross over Calculation