There are two projects that the company is considering: Project A costs 10,000 to implement today,...

There are two projects that the company is considering:

Project A costs 10,000 to implement today, and it brings subsequent cash flows of 5,000 at the end of year 1; 4,000 at the end of year 2; 6,000 at the end of year 3.

Project B's initial cost is 12,000, and subsequent cash flows are 6,000 per year for 3 years.

WACC is 8% for both projects.

a. Calculate NPV and IRR for each project, and decide which one to recommend.

b. Calculate MIRR for projects A and B. Which project would you recommend based on MIRR?

c. Find the crossover rate. What does this rate represent? Describe in one sentence.

Solutions

Expert Solution

jeff jeffy answered 10 months ago

Next > < Previous

Related Solutions

There are two projects that the company is considering: Project A costs 10,000 to implement today,...

There are two projects that the company is considering: Project A costs 10,000 to implement today, and it brings subsequent cash flows of 5,900 at the end of year 1; 2,000 at the end of year 2; 5,000 at the end of year 3. Project B's initial cost is 7,500, and subsequent cash flows are 5,000 per year for 3 years. WACC is 8% for both projects. Calculate NPV and IRR for each project, and decide which to recommend.

What is the NPV of a project that costs $10,000 today and another $10,000 in one...

What is the NPV of a project that costs $10,000 today and another $10,000 in one year, and is then expected to generate 8 annual cash inflows of $4,000 each starting at the end of year 6? The expected return on the market is 9.4%, the risk-free rate is 2% and the project’s beta is 1.4.

What is the NPV of a project that costs $10,000 today and another $10,000 in one...

What is the NPV of a project that costs $10,000 today and another $10,000 in one year, and is then expected to generate 8 annual cash inflows of $4,000 each starting at the end of year 5? Assume a cost of capital of 13% and an IRR of 6.17%.

You are considering the following two mutually exclusive projects. Project A Project B Year 0 -$10,000...

You are considering the following two mutually exclusive projects. Project A Project B Year 0 -$10,000 -$20,000 Year 1 $ 3,000 $ 5,000 Year 2 $ 8,000 $ 7,000 Year 3 $ 4,000 $12,000 Year 4 $ 2,000 $10,000 The required return on each project is 12 percent. Which project should you accept and what is the best reason for that decision? a. Project B; because it has the higher net present value b. Project A; because it pays back...

You must analyze two projects, X and Y. Each project costs $10,000, and the firm’s WACC...

You must analyze two projects, X and Y. Each project costs $10,000, and the firm’s WACC is 12%. The expected net cash flows are as follows: Project X Project Y 0 -$10,000 -$10,000 1 $6,500 $3,500 2 $3,000 $3,500 3 $3,000 $3,500 4 $1,000 $3,500 a. Calculate each project’s NPV, IRR, MIRR, payback, and discounted payback. b. Which project(s) should be accepted if they are independent? c. Which project(s) should be accepted if they are mutually exclusive? Hint: (Project-X IRR...

You are considering two mutually exclusive projects, A and B. Project A costs $70,000 and generates...

You are considering two mutually exclusive projects, A and B. Project A costs $70,000 and generates cash flows of $10,000 for 10 years. Project B costs $80,000 and generates cash flows of $2,000 for six years and then cash flows of $28,000 for four years. Report rates in percentage form to two decimal places i.e. 10.03% not 10% At what discount rate would make you indifferent between choosing one project or another? What is the highest discount rate in which...

A firm is considering two projects both with a life of five years. Project LUCKY costs...

A firm is considering two projects both with a life of five years. Project LUCKY costs $22,000 and after tax cash flows will be $6,000 annually. Project COLT will cost $24,000 and return after tax cash flows of $5,000; $6,000; $7,000; $8,000 and $9,000. The corporation's WACC is 10%

You are considering two mutually exclusive projects, A and B. Project A costs $70,000 and generates...

You are considering two mutually exclusive projects, A and B. Project A costs $70,000 and generates cash flows of $12,000 for 10 years. Project B costs $60,000 and generates cash flows of $2,000 for six years and then cash flows of $29,000 for four years. Which project would you accept if your discount rate was 10%? Which project would you accept if your discount rate was 5%?

The Financial Manager of Alantis Company is considering two projects (project A and project B), which...

The Financial Manager of Alantis Company is considering two projects (project A and project B), which have cash flows as follows: Year Cash Flow of Project A (in $) Cash Flow of Project B (in $) 0 -100 -100 1 10 70 2 60 50 3 80 20 Alantis Company’s cost of capital is 10 percent. Please Calculate the payback, NPV, IRR, and MIRR for both projects. (Show step by step work)

Subjects