Question

NPV

Your division is considering two projects with the following cash flows (in millions):

0

1

2

3

Project A	-$20	$5	$9	$12
Project B	-$13	$8	$7	$3

1. What are the projects' NPVs assuming the WACC is 5%? Round your answer to two decimal places. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55.
   Project A    $   million
   Project B    $   million

   What are the projects' NPVs assuming the WACC is 10%? Round your answer to two decimal places. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55.
   Project A    $   million
   Project B    $   million

   What are the projects' NPVs assuming the WACC is 15%? Round your answer to two decimal places. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55.
   Project A    $   million
   Project B    $   million

2. What are the projects' IRRs assuming the WACC is 5%? Round your answer to two decimal places.
   Project A   %
   Project B   %

   What are the projects' IRRs assuming the WACC is 10%? Round your answer to two decimal places.
   Project A   %
   Project B   %

   What are the projects' IRRs assuming the WACC is 15%? Round your answer to two decimal places.
   Project A   %
   Project B   %

Answer 1

a

Project A
Discount rate	5.000%
Year	0	1	2	3
Cash flow stream	-20	5	9	12
Discounting factor	1.000	1.050	1.103	1.158
Discounted cash flows project	-20.000	4.762	8.163	10.366
NPV = Sum of discounted cash flows
NPV Project A =	3.29
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor

Project B
Discount rate	5.000%
Year	0	1	2	3
Cash flow stream	-13	8	7	3
Discounting factor	1.000	1.050	1.103	1.158
Discounted cash flows project	-13.000	7.619	6.349	2.592
NPV = Sum of discounted cash flows
NPV Project B =	3.56
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor

Project B
Discount rate	10.000%
Year	0	1	2	3
Cash flow stream	-13	8	7	3
Discounting factor	1.000	1.100	1.210	1.331
Discounted cash flows project	-13.000	7.273	5.785	2.254
NPV = Sum of discounted cash flows
NPV Project B =	2.31
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor

Project A
Discount rate	10.000%
Year	0	1	2	3
Cash flow stream	-20	5	9	12
Discounting factor	1.000	1.100	1.210	1.331
Discounted cash flows project	-20.000	4.545	7.438	9.016
NPV = Sum of discounted cash flows
NPV Project A =	1.00
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor

Project A
Discount rate	15.000%
Year	0	1	2	3
Cash flow stream	-20	5	9	12
Discounting factor	1.000	1.150	1.323	1.521
Discounted cash flows project	-20.000	4.348	6.805	7.890
NPV = Sum of discounted cash flows
NPV Project A =	-0.96
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor

Project B
Discount rate	15.000%
Year	0	1	2	3
Cash flow stream	-13	8	7	3
Discounting factor	1.000	1.150	1.323	1.521
Discounted cash flows project	-13.000	6.957	5.293	1.973
NPV = Sum of discounted cash flows
NPV Project B =	1.22
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor

b

IRR is same for all WACCs

Project A
IRR is the rate at which NPV =0
IRR	12.46%
Year	0	1	2	3
Cash flow stream	-20.000	5.000	9.000	12.000
Discounting factor	1.000	1.125	1.265	1.422
Discounted cash flows project	-20.000	4.446	7.116	8.437
NPV = Sum of discounted cash flows
NPV Project A =	0.000
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor
IRR=	12.46%

Project B
IRR is the rate at which NPV =0
IRR	21.49%
Year	0	1	2	3
Cash flow stream	-13.000	8.000	7.000	3.000
Discounting factor	1.000	1.215	1.476	1.793
Discounted cash flows project	-13.000	6.585	4.742	1.673
NPV = Sum of discounted cash flows
NPV Project B =	0.000
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor
IRR=	21.49%