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Problem Two (20 marks) If the cost of capital is 15%, which project should be chosen?...

Problem Two

If the cost of capital is 15%, which project should be chosen? If the cost of capital is 25% which project should be chosen?

Construct the NPV profiles for Project A and Project B. (Note: plot the NPVs of both projects on the same graph.) The cost of capital ranges from 0% to 30% by increments of 2%.

Expected Cash Flows

Expected Cash Flows

Year

Project A

Project B

0

-24,000

-11,500

1

-17,000

4,500

2

1,500

5,000

3

10,500

6,500

4

20,500

8,000

5

25,000

9,000

6

28,000

9,500

7

30,000

10,000
  1. Calculate each project’s IRR and the crossover rate of the two projects.
  2. Calculate each project’s MIRR at a cost of capital of 10%.
  3. Calculate each project’s regular payback period.
  4. Calculate each project’s discounted payback period with a cost of capital of 10%.
  5. Calculate each project’s profitability index at a cost of capital of 10%.

Please answer question using excel functions with in cell viewing.

Solutions

Expert Solution

jeff jeffy answered 2 years ago
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