Question

Your division is considering two projects with the following cash flows (in millions): $4 s14 Project A Project B -$35 -$15 $20 $4 $5 a. What are the projects' NPVs assuming the WACC is 5%? Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to two decimal places. Project A: $ million Project B: $ million What are the projects" NPVs assuming the WACC is 10%? Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to two decimal places. Project A: $ million Project B: $ million What are the projects' NPVs assuming the WACC is 15%? Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to two decimal places. Project A: $ million Project B: $ million b. What are the projects' IRRs assuming the WACC is 5%? Do not round intermediate calculations. Round your answer to two decimal places. Project A: Project B: What are the projects' IRRs assuming the WACC is 10%? Do not round intermediate calculations. Round your answer to two decimal places. Project A: Project B: What are the projects' IRRs assuming the WACC is 15%? Do not round intermediate calculations. Round your answer to two decimal places. 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

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BX projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins - 2x % Cut Σ AutoSum : A Calibri 11 A A = = = V Wrap Text General autosum 27 E Copy Fill Paste BI Merge & Center - U $ D- DA % , :.: Conditional Format Sort & Cell Find & Format Painter Insert Delete Format Formatting as Table Styles 2 Clear Filter Select Clipboard Font Alignment Number Styles Cells Editing BU46 2 BR BS BT BU BV BW BY BZ 46 (a) NPV AT 5% PROJECT A PROJECT B 48 YEAR CFAT PV FACTOR @5% PV OF CFAT YEAR CFAT PV FACTOR @5% PV OF CFAT 49 A B A*B A*B 0 -35 -35 -15 51 14 0.9524 3.81 0.9524 7.62 52 14 0.9070 12.70 0.9070 4.54 53 20 0.8638 17.28 0.8638 3.46 54 NPV AT 5% = -1.22 NPV AT 5% = 0.61 55 47 50 -15 ю о е YEAR 57 58 59 60 00 NPV AT 10% PROJECT A PROJECT B YEAR CFAT PV FACTOR @10% PV OF CFAT -35 -35 4 0.9091 3.64 14 0.8264 11.57 20 0.7513 15.03 NPV AT 10% = -4.77 MI-np-ir REPLACEMENTS HPR GMAM EAC MACRS NPV RELEVANT BETA LEVERED REPLACEMENT ferences: NL296 61 u 62 63 CFAT PV FACTOR @10% PV OF CFAT -15 -15 0.9091 7.27 0.8264 4.13 0.7513 3.01 NPV = -0.59 BOND OPTION TO WAITSTEIN indiffEPS EBIT LEASE SLM GOLF IRR MACII BO 130% -_- 2. R 4 * 10 ENG 30-11-2019 H M Red

projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) Data Review View Add-Ins File Home Insert Page Layout Formulas - 2x % Cut Calibri A = = = V General 11 A D- DA Wrap Text Merge & Center - BI U $ % , :.: Conditional Format Formatting as Table Styles Cell Styles Insert Delete Format Σ AutoSum : A Fill Sort & 2 Clear Filter Editing Find & Select Font E Copy Paste Format Painter Clipboard BZ80 BR Alignment Number Cells BS BT BU B V BW BX BY BZ 67 NPV AT 15% PROJECT A YEAR CFAT PVE CFAT 68 69 70 71 72 73 PV FACTOR @ 15% O -15 1 PROJECT B PV FACTOR @15% PV OF CFAT YEAR -35 -35 4 0.8696 3.48 14 0.7561 10.59 20 0.6575 13.15 -7.79 do PV OF CFAT -15 0.8696 6.96 0.7561 3.78 0.6575 2.63 N u 74 w 75 NPV = NPV = -1.63 76 PROJECT B PROJECT A YEAR YEAR CFAT -35 CFAT -15 77 (b) 78 79 80 81 82 83 84 14 20 IRR = 3.47% (=IRR(BT80:BT83)] IRR = 7.45% (=IRR(BX80:BX83)] ATWAA En Inn MI-np-ir REPLACEMENTS HPR GMAM ferences: NL296 EAC MACRS NPV RELEVANT BETA LEVERED REPLACEMENT BOND OPTION TO WAITSTEIN indiffEPS EBIT LEASE SLM GOLF IRR MAIL BOI 130% - O- Red 2. B 19 * 40 ENG 30-11-2019

Cells BY BZ 78 w No projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins - 2x % Cut Σ AutoSum : A Calibri 11 A A = = = V Wrap Text General E Copy Fill Paste BI U D- DA SF Merge Merge & Center - Center $ % % Format Painter , 4:0 .00 :.: Conditional Format Cell Insert Delete Format Sort & Find & Formatting as Table Styles 2 Clear Filter Select Clipboard Font Alignment Number Styles Editing BZ94 BR BS BT BU B V BW BX 77 (b) PROJECT A PROJECT B YEAR CFAT YEAR CFAT 79 -35 -15 80 81 14 20 83 IRR = 3.47% (=IRR(BT80:BT83)] IRR = 7.45% (=IRR(BX80:BX83)] 84 85 AT WACC = 5%, IRR = 86 IRR = 3.47% PROJECT A 87 IRR = 7.45% PROJECT B 88 IRR DOES NOT CHANGE WITH CHANGE IN WACC 89 AT WACC =10% 90 IRR = 3.47% PROJECT A IRR = 7.45% PROJECT B 92 AT WACC =15% 93 IRR = 3.47% PROJECT A 94 IRR = 7.45% PROJECT B 95 N MI-np-ir REPLACEMENTS HPR GMAM EAC MACRS NPV RELEVANT BETA LEVERED REPLACEMENT BOND OPTION TO WAITSTEIN indiffEPS EBIT LEASE SLM GOLF IRRMACI Rea ferences: NL296 BOI 130% - 0_+ 2. B 19 * 40 ENG 30-11-2019 91 H

projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) Data Review View Add-Ins File Home Insert Page Layout Formulas - 2x % Cut A = = = V General 11 A D- DA Font Wrap Text Merge Merge & Center - Center Σ AutoSum : A Fill 2 Sort & DEEZER m Find & U SF $ % % , 4:0 .00 :.: Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles 2 Clear Filter Editing Select Alignment Number Calibri E Copy Paste Format Painter BI Clipboard BQ106 BQ 101 Cells fic BR BU BV BW BX BY (c) 102 103 INCREMENTAL CFAT -20 -15 BS BT А В YEAR CFAT CFAT 0 -35 14 14 3 20 CROSSOVER RATE 104 105 106 107 108 1.66% (=IRR(BV103:BV106)] 109 IF WACC=5% PROJECT B SELECT SELECT THE PROJECT WITH HIGHEST POSITIVE NPV 110 111 112 113 114 IF WACC=10% NONE SELECT SELECT THE PROJECT WITH HIGHEST POSITIVE NPV 115 SELECT THE PROJECT WITH HIGHEST POSITIVE NPV 116 117 118 N Red SELECT HPR GMAM IF WACC=15% NONE EAC MACRS NPV RELEVANT BETA LEVERED REPLACEMENT BOND OPTION TO WAITSTEIN indiffEPS EBIT LEASE MI-np-ir REPLACEMENTS ferences: NL296 SLM GOLF IRRMACII BOJ 130% 0 + 2. B 19 * 40 ENG 30-11-2019