Question

A company has a 13% 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	-$400	$135	$135	$135	$135	$135	$135	$0

1. What is each project's NPV? Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest cent.

   Project A: $  

   Project B: $  

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

   Project A:   %

   Project B:   %

4. Construct NPV profiles for Projects A and B. If an amount is zero, enter 0. Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest cent.

   Discount Rate	NPV Project A	NPV Project B
   0%	$	$
   5
   10
   12
   15
   18.1
   24.83

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

     

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

   Project A:   %

   Project B:   %

Answer 1

		Expected net cash flows
	Time	Project A	Project B
	0	($300)	($400)
	1	($387)	$135
	2	($193)	$135
	3	($100)	$135
	4	$600	$135
	5	$600	$135
	6	$850	$135
	7	($180)	$0
a. Computation of NPV with WACC of 13%
@ a 13% cost of capital
WACC =	13%
NPV A =	$162.48		=NPV(0.13,C12:C18)+C11
NPV B =	$139.67		=NPV(0.13,D12:D18)+D11
b.   What is each project's IRR?
We find the internal rate of return with Excel's IRR function:
IRR A =	18.10%
IRR B =	24.83%
c. MIRR
	@ a 13% cost of capital
	MIRR A =	15.60%
	MIRR B =	17.94%
d) NPV profile
Discount Rate	NPV Project A	NPV Project B
0%	$890	$410
5%	$540	$285
10%	$283	$188
12%	$200	$155
15%	$93	$111
18.10%	($0)	$71
24.83%	($154)	$0
e) Cross over rate
Year	Cash flow delta
0	$100
1	($522)
2	($328)		Cross over rate=		14.09%
3	($235)
4	$465
5	$465
6	$715
7	($180)
f) MIRR at 18% rate
MIRR A	18.05%
MIRR B	20.83%