Question

Ch 11 #12

A company has a 13% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following cash flows:

YEARS 0. 1. 2. 3. 4. 5. 6. 7

Project A. -$300    -$387   -$193 -$100   $600 $600 $850 -$180

Project B -$400 $131 $131   $131 $131 $131 $131 $0

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: $  

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

Project A:

  %

Project B:

  %

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:

  %

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

A or B

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

A or B

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

23.54

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

  %

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