Question

10. General Motors is considering two projects with the following cash flows (in millions) Year Project A Project B 0 -$25 -$20 1 $5 $10 2 $10 $9 3 $17 $6 What are the projects’ NPVs assuming the WACC is 5% What are the projects’ NPVs assuming the WACC is 10% What are the projects’ NPVs assuming the WACC is 15%.

Answer 1

1)	at 5%
				Project A			Project B
	Year	Discount factor		Cash flows	Present value of cash flow		Cash flows	Present value of cash flow
	a	b=1.05^-a		c	d=c*b		e	f=e*b
	0	1.0000		$            -25	$              -25.00		$            -20	$               -20.00
	1	0.9524		$                5	$                  4.76		$             10	$                   9.52
	2	0.9070		$             10	$                  9.07		$                9	$                   8.16
	3	0.8638		$             17	$                14.69		$                6	$                   5.18
	NPV				$                  3.52			$                   2.87
2)	at 10%
				Project A			Project B
	Year	Discount factor		Cash flows	Present value of cash flow		Cash flows	Present value of cash flow
	a	b=1.10^-a		c	d=c*b		e	f=e*b
	0	1.0000		$            -25	$              -25.00		$            -20	$               -20.00
	1	0.9091		$                5	$                  4.55		$             10	$                   9.09
	2	0.8264		$             10	$                  8.26		$                9	$                   7.44
	3	0.7513		$             17	$                12.77		$                6	$                   4.51
	NPV				$                  0.58			$                   1.04
3)	at 15%
				Project A			Project B
	Year	Discount factor		Cash flows	Present value of cash flow		Cash flows	Present value of cash flow
	a	b=1.15^-a		c	d=c*b		e	f=e*b
	0	1.0000		$            -25	$              -25.00		$            -20	$               -20.00
	1	0.8696		$                5	$                  4.35		$             10	$                   8.70
	2	0.7561		$             10	$                  7.56		$                9	$                   6.81
	3	0.6575		$             17	$                11.18		$                6	$                   3.95
	NPV				$                 -1.91			$                  -0.55