Question

Part 2 -

The second model isfor a project forGardialFisheries. GardialFisheries is considering two mutually exclusive investments. The projects’ expected net cash flows are as follows: Expected Net Cash Flows for the 7 year Project are:

Project A −$375, −300, −200, −100, 600, 600, 926 and, −200

Project B −$575, 190, 190, 190, 190, 190, 190 and, 0

• If each project’s cost of capital is 12%, which project should be selected? If the cost of capital is 18%, what project is the proper choice?
• Construct NPV profiles for Projects A and B.
• What is each project’s IRR?
• What is the crossover rate, and what is its significance?
• What is each project’s MIRR at a cost of capital of 12%? At r 18%? (Hint: Consider Period 7 as the end of Project B’s life.)
• What is the regular payback period for these two projects? (Hint: Excel’s PERCENTRANK function may not work correctly for Project A because it hasnonnormal cash flows.)
• At a cost of capital of 12%, what is the discounted payback period for these two projects?
• What is the profitability index for each project if the cost of capital is 12

Answer 1