Question

NPV Your division is considering two projects with the following cash flows (in millions): Project A -$11 $4 $7 Project B $20 $12 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 A $ .02 million Project B $ 3.74 million What are the projects' NPVs assuming the WACC is 10%? 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 A $ .83 million Project B $ 1.80 million What are the projects' NPVs assuming the WACC is 15%? 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 A $ 1.57 % million Project B $ 13 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 .13 % 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 .83 % Project B 1.80 % 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 1.57 % Project B 13 %

Answer 1

1. a.   Project A

Net present value can be calculated using a financial calculator by inputting the below:

• •   Press the CF button.
• •   CF0= -$11.It is indicated the initial cash flow by a negative sign since it is a cash outflow.
• •   Cash flow for each year should be entered.
• •   Press Enter and down arrow after inputting each cash flow.
• •   After entering the last cash flow cash flow, press the NPV button and enter the weighted average cost of capital of 5%.
• •   Press enter after that. Press the down arrow and CPT buttons to get the net present value.

The net present value is $0.02.

Project B

Net present value can be calculated using a financial calculator by inputting the below:

• •   Press the CF button.
• •   CF0= -$20.It is indicated the initial cash flow by a negative sign since it is a cash outflow.
• •   Cash flow for each year should be entered.
• •   Press Enter and down arrow after inputting each cash flow.
• •   After entering the last cash flow cash flow, press the NPV button and enter the weighted average cost of capital of 5%.
• •   Press enter after that. Press the down arrow and CPT buttons to get the net present value.

The net present value is $3.74.

Project A

Net present value can be calculated using a financial calculator by inputting the below:

• •   Press the CF button.
• •   CF0= -$11.It is indicated the initial cash flow by a negative sign since it is a cash outflow.
• •   Cash flow for each year should be entered.
• •   Press Enter and down arrow after inputting each cash flow.
• •   After entering the last cash flow cash flow, press the NPV button and enter the weighted average cost of capital of 10%.
• •   Press enter after that. Press the down arrow and CPT buttons to get the net present value.

The net present value is -$0.83.

Project B

Net present value can be calculated using a financial calculator by inputting the below:

• •   Press the CF button.
• •   CF0= -$20.It is indicated the initial cash flow by a negative sign since it is a cash outflow.
• •   Cash flow for each year should be entered.
• •   Press Enter and down arrow after inputting each cash flow.
• •   After entering the last cash flow cash flow, press the NPV button and enter the weighted average cost of capital of 5%.
• •   Press enter after that. Press the down arrow and CPT buttons to get the net present value.

The net present value is $1.80.

Project A

Net present value can be calculated using a financial calculator by inputting the below:

• •   Press the CF button.
• •   CF0= -$11.It is indicated the initial cash flow by a negative sign since it is a cash outflow.
• •   Cash flow for each year should be entered.
• •   Press Enter and down arrow after inputting each cash flow.
• •   After entering the last cash flow cash flow, press the NPV button and enter the weighted average cost of capital of 15%.
• •   Press enter after that. Press the down arrow and CPT buttons to get the net present value.

The net present value is -$1.57.

Project B

Net present value can be calculated using a financial calculator by inputting the below:

• •   Press the CF button.
• •   CF0= -$20.It is indicated the initial cash flow by a negative sign since it is a cash outflow.
• •   Cash flow for each year should be entered.
• •   Press Enter and down arrow after inputting5.12 each cash flow.
• •   After entering the last cash flow cash flow, press the NPV button and enter the weighted average cost of capital of 15%.
• •   Press enter after that. Press the down arrow and CPT buttons to get the net present value.

The net present value is $0.13.

1. b.   Project A

Internal rate of return is calculated using a financial calculator by inputting the below:

• •   Press the CF button.
• •   CF0= -$11. It is entered with a negative sign since it is a cash outflow.
• •   Cash flow for each year should be entered.
• •   Press Enter and down arrow after inputting each cash flow.
• •   After entering the last cash flow cash flow, press the IRR and CPT button to get the IRR of the project.

The IRR of project is 5.12%.

Project B

Internal rate of return is calculated using a financial calculator by inputting the below:

• •   Press the CF button.
• •   CF0= -$20. It is entered with a negative sign since it is a cash outflow.
• •   Cash flow for each year should be entered.
• •   Press Enter and down arrow after inputting each cash flow.
• •   After entering the last cash flow cash flow, press the IRR and CPT button to get the IRR of the project.

The IRR of project is 15.43%.

In case of any query, kindly comment on the solution.