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	$131	$131	$131	$131	$131	$131	$0

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

Project A: $

Project B: $

B. 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: %

C. 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	$	$
23.01	$	$

Answer 1

Using financial calculator to calculate the NPV of 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 = 11%

Npv= compute

We get, NPV of Project A as $240.64

Project B

Using financial calculator to calculate the NPV

Inputs: C0= -405

C1= 131 Frequency= 6

C2= 0 Frequency= 1

I= 11%

NPV= compute

We get, NPV of the project B as $149.20

B) MIRR of project A

Present value of cash outflows

= 300 + 387/(1+0.11)^1 + 193/(1+0.11)^2 + 100/(1+0.11)^3 + 180/(1+0.11)^7

= 300 + 387/(1.11) + 193/(1.11)^2 + 100/(1.11)^3 + 180/(1.11)^7

= 300 + 387/ 1.11 + 193/ 1.2321 + 100/1.3676 + 180/2.0762

= 300 + 348.65 + 156.64 + 73.12 + 86.70

= 965.11

Future value of cash inflows

= 600 (1+0.11)^3 + 600 (1+0.11)^2 + 850 (1+0.11)^1

= 600 (1.11)^3 + 600 (1.11)^2 + 850 (1.11)

= 600 (1.3676) + 600 (1.2321) + 850 (1.11)

= 820.56 + 739.26 + 943.50

= 2,503.32

MIRR of Project A = (Future value of cash inflow / Present value of cash outflow)^1/7 - 1

= (2,503.32 / 965.11)^ 1/7 - 1

= 2.5938 ^ 0.142857 - 1

= 1.1459 - 1

= 0.1459 or 14.59%

MIRR of Project B

Present value of cash outflow = 405

Future value of cash inflows

= 131 (1+0.11)^6 + 131 (1+0.11)^5 + 131 (1+0.11)^4 + 131 (1+0.11)^3 + 131 (1+0.11)^2 + 131 (1+0.11)^1

= 131 (1.11)^6 + 131 (1.11)^5 + 131 (1.11)^4 + 131 (1.11)^3 + 131 (1.11)^2 + 131 (1.11)^1

= 131 (1.870) + 131 (1.6851) + 131 (1.5181) + 131 (1.3676) + 131 (1.2321) + 131 (1.11)

= 244.97 + 220.75 + 198.87 + 179.156 + 161.41 + 145.41

= 1,150.57

MIRR of project B = (future value of inflow / present value of outflow)^1/n - 1

= (1,150.57 / 405)^1/7 - 1

= 2.841^ 0.142857 - 1

= 1.1609 - 1

= 0.1609 or 16.09%

C) Using financial calculator to find the NPV of the projects

NPV profile

Discount rate	NPV of A	NPV of B
0%	$890	$381
5	$540.09	$259.92
10	$283.34	$165.54
12	$200.41	$133.59
15	$92.96	$90.77
18.1	- $0.09	$52.01
23.01	- $117.69	- $0.01