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.
Project A NPV: $ 200.41
Project B NPV: $ 138.59
Project A MIRR: 15.10%
Project B MIRR: 16.86%
- What is each project's IRR? Round your answer to two decimal places.
Project A: __%
Project B: __%
- From the above answers, which project would be selected?
If the WACC was 18%, which project would be selected?
- 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.
- Calculate the crossover rate where the two projects' NPVs are equal. Round your answer to two decimal places. Do not round your intermediate calculations.
- 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: __%
rate positively .. let me know if you need any more clarification.
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% |
A company has a 12% WACC and is considering two mutually exclusive investments (that cannot be...
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 What is each...
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