Question

3. Capital budgeting criteria

A company has a 11% 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	-$405	$133	$133	$133	$133	$133	$133	$0

What is each project's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations.
Project A $  ________
Project B $  ________

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

Project A ________ %
Project B  ________%

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  ________%

From your answers to parts a-c, which project would be selected?
Answwer: Project A
If the WACC was 18%, which project would be selected?
Answer: Project B

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	$   ________	$  ________
23.65	$   ________	$   ________

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  ________%

Answer 1

2 Expected Net Cash flows Time Project A Project B 1000.00 900.00 800.00 700.00 600.00 500.00 400.00 300.00 200.00 100.00 0.00 100.00 200.00 300.00 133 133 133 133 133 133 387 193 -100 4 10 850 NPV Project A NPV Project B 13 Discount Rate NPV Project A NPV Project B 14 890.00 540.09 283.34 200.41 92.96 0.09 -130.77 393.00 270.07 174.25 141.82 98.34 58.99 0.02 5% 10% 16 17 19 20 21 15% 18.1% 23.65% 23