Question

s NPV Your division is considering two projects with the following cash flows (in millions): o 1 2 3 + Project -$35 $4 $14 $20 A Project -$15 $a $5 $1 B a. What are the projects' NPVs assuming the WACC is 5%? Round your answer to two decimal places. Do not round your intermediate calculations. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative value should be indicated by a minus sign. Project AS million Project B S million What are the projects' NPVs assuming the WACC is 10%? Round your answer to two decimal places. Do nat round your intermediate calculations. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative value should be indicated by a minus sign. Project AS million Project B million What are the projects' NPVs assuming the WACC is 15%7 Round your answer to two decimal places. Do not round your intermediate calculations. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative value should be indicated by a minus sign. Project AS million Projects million b. What are the projects' IRRs assuming the WACC is 5%? Round your answer to two decimal places. Do not round your intermediate calculations. Project A Project B %u What are the projects' IRRs assuming the WACC IS 10%? Round your answer to two decimal places. Do not round your intermediate calculations. Project A Project B What are the projects' IRRs assuming the WACC is 15%? Round your answer to two decimal places. Do not round your intermediate calculations. Project A Project B c. If the WACC was 5% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 1.66%) -Select If the WACC was 10% and A and B were mutually exclusive, which project would you choose? (Hint: The Crossover rate is 1.66%.) |-Select- If the WACC was 15% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 1,66%) Select

Answer 1

는 A D E F G - K L 1 2 Project B: Year 0 3 H a) NPV if WACC is 5%: Project A=-1.22 Project B = 0.61 Cash flow -15 B с If WACC is 5%: Project A: Year Cash flow 0 -35 1 4 2 14 3 20 NPV -1.22 IRR 3.47% 4 5 1 8 5 6 2 7 3 4 NPV if WACC is 10%: Project A = -4.77 Project B = -0.59 8 NPV IRR 0.61 7.45% 9 10 NPV if WACC is 15%: Project A = -7.79 Project B = -1.63 If WACC is 10%: Project A: Year Cash flow 0 -35 Project B: Year 0 Cash flow -15 4 1 1 2 3 8 5 b) IRR at 5%, 10% and 15% WACC are same. Project A = 3.47% Project B = 7.45% 14 2 3 NPV IRR 20 -4.77 3.47% NPV IRR 4 -0.59 7.45% 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 c) If WACC is 5%, then Project B should be accepted If WACC is 10%, then Project B should be accepted. If WACC is 15%, then Project B should be accepted. If WACC is 15%: Project A: Year Cash flow 0 -35 Project B: Year Cash flow - 15 0 1 4 ܢܙ 8 5 2 14 20 3 4 2 3 NPV IRR NPV -7.79 3.47% -1.63 7.45% IRR

EXCEL FORMULA:

A D E F 1 2 B If WACC is 5%: Project A: Year Project B: Year 3 Cash flow Cash flow 4 0 -35 0 -15 5 1 4 1 8 6 2 14 2 5 3 3 4 7 8 NPV 20 =NPV(5%,C5:07)+C4 =IRR(C4:07) NPV IRR =NPV(5%,F5:F7)+F4 =IRR(F4:F7) 9 IRR 10 If WACC is 10% Project A: Year Project B: Year Cash flow Cash flow 0 -35 0 -15 1 4 1 8 2 14 2 5 3 3 4 NPV IRR 20 =NPV(10%,C15:C17)+C14 =IRR(C14:017) NPV IRR =NPV(10%,F15:F17)+F14 =IRR(F14:F17) 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 If WACC is 15%: Project A: Year Project B: Year Cash flow Cash flow 0 -35 0 -15 1 4 1 8 2 14 2 5 3 3 NPV 20 =NPV(15%,C25:C27)+C24 =IRR(C24:C27) NPV 4 =NPV(15%,F25:F27)+F24 =IRR(F24:F27) IRR IRR