Question

A company has a 13% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following cash flows: 0 1 1 2 3 4 5 6 7 Project A Project B -$300 -$400 -$387 $134 -$193 $134 -$100 $134 $600 $134 $600 $134 $850 $134 -$180 $0 a. 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: $ b. What is each project's IRR? Do not round intermediate calculations. Round your answers to two decimal places. Project A: Project B: c. 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: d. From your answers to parts a-c, which project would be selected? -Select- If the WACC was 18%, which project would be selected? -Select-

Answer 1

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projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) Formulas File Home Insert Page Layout Data Review View Add-Ins E AutoSum - Cut Wrap Text Calibri 11 General Copy Fill Sort & Find & Filter Select Merge & Center Paste в IU* Conditional Format Cell Insert Delete Format % Format Painter Clear Formatting as Table Styles Clipboard Font Alignment Number Styles Cells Editing fox F441 A D 441 COST OF CAPITAL 13% PV FACTOR 442 PV OF CFAT PROJECT B 443 YEAR PROJECT A PV FACTOR @ 13% AT 13% PV OF CFAT 444 0 -300 1.0000 -300.00 -400 1.0000 -400.00 445 1 -387 0.8850 -342.48 134 0.8850 118.58 0.7831 446 2 -193 -151.15 134 0.7831 104.94 0.6931 447 3 -100 0.6931 -69.31 134 92.87 367.99 0.6133 448 600 134 0.6133 82.18 449 0.5428 325.66 5 600 134 0.5428 72.73 0.4803 450 6 850 408.27 134 0.4803 64.36 451 -180 0.4251 7 0.4251 -76.51 0 0.00 452 NPV= 453 PROJECT A NPV = 162.48 PROJECT B 135.67 454 18.10% IRR(C444:C451) 455 b IRR= IRR= 24.51% 15.60% [MIRR(C444:C451, D441,D441)] 456 MIRR= MIRR= 17.81% 457 458 NPV IS THE BEST METHOD AND ACCORDING TO IT, PROJECT A IS TO BE SELECTED 459 HPR GMAM EAC MACRS GOLFD REPLACEMENT S NPV RELEVANT BETA LEVERED STEIN indiffEPS EBIT MI-np-ir BOND REPLACEMENT OPTION TO WAIT LEASE STRAIGHT LINE ferences: P306 130% + WA 08:38 ENG 28-11-2019

projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) Formulas File Home Insert Page Layout Data Review View Add-Ins Z AutoSum Cut EWrap Text Calibri 11 General Copy Fill Merge & Center Insert Delete Format Paste в IU* 000 Conditional Format Cell Sort & Find & % Format Painter Clear Filter Select Formatting as Table Styles Clipboard Font Alignment Number Styles Cells Editing fox F477 F Н 459 460 461 IF WACC-18% (ТАBLE A-3) 462 (ТABLE A-3) 463 PROJECT A PROJECT B PV FACTOR 464 YEAR CFAT PV FACTOR @ 18% PV OF CFAT CFAT AT 18% PV OF CFAT -400.00 465 0 -300 1.0000 -300.00 -400 1.0000 466 1 -387 0.8475 -327.97 134 0.8475 113.56 467 0.7182 2 -193 0.7182 -138.61 134 96.24 0.6086 0.6086 468 3 -100 -60.86 134 81.56 469 600 4 0.5158 309.47 134 0.5158 69.12 0.4371 0.4371 470 600 262.27 134 58.57 0.3704 0.3704 471 6 850 314.87 134 49.64 0.3139 472 7 -180 -56.51 0 0.3139 0.00 473 PROJECT A NPV = NPV= 474 2.66 PROJECT B 68.68 475 476 PROJECT B IS TO BE SELECTED 477 GOLFO BETA LEVERED M-пр-ir ferences: P306 NPV STEIN indiffEPS EBIT REPLACEMENT S HPR GMAM OPTION TO WAIT EAC MACRS RELEVANT REPLACEMENT BOND LEASE STRAIGHT LINE 130% + WA 08:38 ENG 28-11-2019

projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) Formulas File Home Insert Page Layout Data Review View Add-Ins E AutoSum - Cut AC Wrap Text Calibri 11 General Copy Fill Merge & Center Conditional Format Formatting as Table Styles Paste в IU* 000 Cell Insert Delete Format Sort & Find & % Format Painter Clear Filter Select Clipboard Font Alignment Number Styles Cells Editing fox G489 A В 477 [=NPV(C480,$C$466:$C$472) + $C$465] NPV PROFILE 478 e [NPV(C480,$G$466:SG$472) + $G$465] DISCOUNT RATE NPV A 479 NPV B 890.00 404.00 480 0% 540.09 now copy and paste 481 5% 280.14 283.34 the above functions 482 10% 183.60 483 12% 200.41 150.93 you will get NPVS 107.12 484 15% 92.96 485 18.10% -0.09 67.48 -147.63 486 24.51% -0.02 487 f 488 CROSS OVER RATE 489 А-В 490 YEAR PROJECT A PROJECT B INCREMENTAL CFAT 491 0 -300 -400 100 492 1 -387 134 -521 493 2 -193 134 -327 -234 494 3 -100 134 134 NPV RELEVANT 495 600 HPR GMAM 466 REPLACEMENT S FAC MACRS GOLFO MI-np-ir OPTION TO WAIT STEIN indiffEPS EBIT STRAIGHT LINE 1 BETA LEVERED REPLACEMENT BOND LEASE ferences: P306 130% + WA 08:39 ENG 28-11-2019

projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) Page Layout Formulas File Home Insert Data Review View Add-Ins Z AutoSum Cut AC Wrap Text Calibri 11 General Copy Fill Merge & Center Paste в IU* 000 Conditional Format Cell Insert Delete Format Sort & Find & % Format Painter Clear Filter Select Formatting as Table Styles Number Clipboard Font Alignment Styles Cells Editing G504 C G Н 488 f CROSS OVER RATE 489 А-В PROJECT A 490 YEAR PROJECT B INCREMENTAL CFAT 0 -300 -400 100 491 492 1 -387 134 -521 493 2 -193 134 -327 494 3 -100 134 -234 600 495 134 4 466 496 600 134 466 497 6 850 134 716 498 7 -180 0 -180 499 14.28% [IRR(E491:E498)] 500 501 (IRR FORMULA) 502 503 MIRR AT WACC-18% g 18.05% EMIRR(C491:C498,18%,18%)] 504 MIRR = 20.70% MIRR(D491:D498,18%,18%)] 505 MIRR = 506 GOLFO EAC МАCRS REPLACEMENT HPR GMAM NPV RELEVANT BETA LEVERED LEASE MI-np-ir REPLACEMENT S STEIN indiffEPS EBIT 1 BOND OPTION TO WAIT STRAIGHT LINE ferences: P306 130% A WA 08:39 ENG 28-11-2019