Question

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1. Considering the following projects.

Project	Year	0	1	2	3	4
A	Cash flows	-$100	$35	$35	$35	$35
B	Cash flows	-$100	$60	$50	$40	$30

If project B is risker than project A, in which project A has WACC = 6.00% while project B has WACC = 8.50%. If these two projects are mutually exclusive, which project should the company accept?

Compute: NPV, IRR, MIRR, payback, and discounted payback period for each project.

# please with details.

Answer 1

Solution:-

To Calculate NPV of the Project-

In Mutually Exclusive Project, Project is accepted huge NPV is higher. Project B is accepted.

To Calculate IRR of the Project-

To Calculate Payback Period of Project A-

Payback Period =

Payback Period =

Payback Period = 2.86 years

Payback Period of Project B-

Payback Period =

Payback Period of Project B
Year	Cash Flow	Cummulative Cash Flow
0	-100
1	60	60
2	50	110
3	40	150
4	30	180

Payback Period =

Payback Period = 1.80 years

To Calculate MIRR-

MIRR Formula =

Project A-

Future Value
Year	Deposit Amount	WACC @ 6%	Future Value
1	35	1.191	41.69
2	35	1.124	39.33
3	35	1.060	37.10
4	35	1.000	35.00
		Future Value	153.11

MIRR =

MIRR = 11.24%

MIRR of Project B-

Future Value
Year	Deposit Amount	WACC @ 8.50%	Future Value
1	60	1.277	76.64
2	50	1.177	70.63
3	40	1.085	54.25
4	30	1.000	40.00
		Future Value	241.52

MIRR =

MIRR = 24.66%

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