Question

In: Finance

0 1 2 3 4 5 6 7 Project A -$300 -$387 -$193 -$100 $600 $600...

0 1 2 3 4 5 6 7
Project A -$300 -$387 -$193 -$100 $600 $600 $850 -$180
Project B -$400 $134 $134 $134 $134 $134 $134 $0
Project Delta
#N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A
Crossover Rate = IRRΔ #N/A
Project MIRR Calculations at WACC = 18%
WACC 18.00%
MIRRA #N/A
MIRRB #N/A

Solutions

Expert Solution

1. NPV

The NPV of both projects. Discount each cash flow to Period 0 and find their sum.

PROJECT A

Period Cash Flow / Discounted factor Discounted cash flow

0 -300 (1.11)0 -300

1 -387 (1.11)1 -348.65

2 -193 (1.11)2 -156.64

3 -100 (1.11)3 -73.12

4 600 (1.11)4 398.24

5 600   (1.11)5 356.07

6 850   (1.11)6 454.44

7 -180 (1.11)7 -86.7

Total NPV 240.64  

PROJECT B

Period Cash Flow / Discounted factor Discounted cash flow

0 -400 (1.11)0 -400

1 -134 (1.11)1 120.72

2 -134 (1.11)2 108.94

3 -134 (1.11)3 97.81

4 -134 (1.11)4 88.16

5 -134 (1.11)5 79.76

6 -134 (1.11)6 75.66

7 0 (1.11)7 0

TOTAL NPV 171.05

IRR

The IRR can't be solved through traditional means, equation or algebra. A financial calculator is needed to solve this problem.

Project A

Find the cash flow editor and input the following.

Peirod Cash Flow

0 -300

1 -387

2 -193

3 -100

4 600

5 600

6 850

7 -180

Solving for IRR gives us 18.0967%


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