Question

A company has a 12% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following cash flows:

0

1

2

3

4

5

6

7

Project A	-$300	-$387	-$193	-$100	$600	$600	$850	-$180
Project B	-$400	$131	$131	$131	$131	$131	$131	$0

The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.

Open spreadsheet

1. What is each project's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations.

   Project A: $  

   Project B: $  

2. What is each project's IRR? Round your answer to two decimal places.

   Project A: %

   Project B: %

3. What is each project's MIRR? (Hint: Consider Period 7 as the end of Project B's life.) Round your answer to two decimal places. Do not round your intermediate calculations.

   Project A: %

   Project B: %

4. From your answers to parts a-c, which project would be selected?

   _________Project AProject B

   If the WACC was 18%, which project would be selected?

   _________Project AProject B

5. 
   

6. Construct NPV profiles for Projects A and B. Round your answers to the nearest cent. Do not round your intermediate calculations. Negative value should be indicated by a minus sign.

   Discount Rate	NPV Project A	NPV Project B
   0%	$	$
   5	$	$
   10	$	$
   12	$	$
   15	$	$
   18.1	$	$
   23.54	$	$

7. Calculate the crossover rate where the two projects' NPVs are equal. Round your answer to two decimal places. Do not round your intermediate calculations.

   %

8. What is each project's MIRR at a WACC of 18%? Round your answer to two decimal places. Do not round your intermediate calculations.

   Project A: %

   Project B: %

Answer 1

rate positively ..

		Expected net cash flows
	Time	Project A	Project B
	0	($300)	($400)
	1	($387)	$131
	2	($193)	$131
	3	($100)	$131
	4	$600	$131
	5	$600	$131
	6	$850	$131
	7	($180)	$0
a. Computation of NPV with WACC of 12%
@ a 12% cost of capital
WACC =	12%
NPV A =	$200.41
NPV B =	$138.59
b.   What is each project's IRR?
We find the internal rate of return with Excel's IRR function:
IRR A =	18.10%
IRR B =	23.54%
c. MIRR
	@ a 12% cost of capital
	MIRR A =	15.10%
	MIRR B =	16.86%
d) Selection
Project A should be selected.
If WACC is 18% than project B should be selected
e) NPV profile
Discount Rate	NPV Project A	NPV Project B
0%	$890.00	$386.00
5%	$540.09	$264.92
10%	$283.34	$170.54
12%	$200.41	$138.59
15%	$92.96	$95.77
18.10%	($0.09)	$57.01
23.54%	($128.55)	($0.04)
f) Cross over rate
Year	Cash flow delta
0	$100
1	($518)
2	($324)		Cross over rate=	14.86%
3	($231)
4	$469
5	$469
6	$719
7	($180)
G) MIRR at 18% rate
MIRR A	18.05%
MIRR B	20.31%