A B C D E 2 345 Consider the following two mutually exclusive projects. What is the IRR for each project? What is the crossover rate between the two projects? What is the NPV for each project at a required return of 11 percent? What is the NPV for each project at the various interest rates shown? 4 Input area: 69 7 Year 0 8 Year 1 9 Year 2 A B ($41,300) ($41,300) 19,100 6,300 17,800 14,200 15,200 17,900 8,400 30,300 10 Year 3 11 Year 4 12 13 Required return 11% 14 15 Required return 0% 16 Required return 5% 17 Required return 10% 18 Required return 15% 19 Required return 20% 25% FL G H 20 Required return 21 22 (Use cells A6 to C20 from the given information to complete this question. You must use the built-in Excel 23 function to answer this question.) 24 24 25 Output area: 26 27 IRR A 28 IRR B 29 30 31 Year 0 32 Year 1 33 Year 2 34 Year 3 35 Year 4 36 37 Crossover rate 38 39 NPV A 40 NPV B 41 13.11% -3.10% CF difference 42 NPV A NPV B 43 NPV at 0% 44 NPV at 5% 45 NPV at 10% 46 NPV at 15% 47 NPV at 20% 48 NPV at 25% 49

A B C D E 2 345 Consider the following two mutually exclusive projects. What is the IRR for each project? What is the crossover rate between the two projects? What is the NPV for each project at a required return of 11 percent? What is the NPV for each project at the various interest rates shown? 4 Input area: 69 7 Year 0 8 Year 1 9 Year 2 A B ($41,300) ($41,300) 19,100 6,300 17,800 14,200 15,200 17,900 8,400 30,300 10 Year 3 11 Year 4 12 13 Required return 11% 14 15 Required return 0% 16 Required return 5% 17 Required return 10% 18 Required return 15% 19 Required return 20% 25% FL G H 20 Required return 21 22 (Use cells A6 to C20 from the given information to complete this question. You must use the built-in Excel 23 function to answer this question.) 24 24 25 Output area: 26 27 IRR A 28 IRR B 29 30 31 Year 0 32 Year 1 33 Year 2 34 Year 3 35 Year 4 36 37 Crossover rate 38 39 NPV A 40 NPV B 41 13.11% -3.10% CF difference 42 NPV A NPV B 43 NPV at 0% 44 NPV at 5% 45 NPV at 10% 46 NPV at 15% 47 NPV at 20% 48 NPV at 25% 49

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

10th Edition

ISBN:9781337902571

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter11: The Basics Of Capital Budgeting

Section: Chapter Questions

Problem 11P: CAPITAL BUDGETING CRITERIA: MUTUALLY EXCLUSIVE PROJECTS Project S requires an initial outlay at t =...

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Mutually exclusive projects and NPV you have been assigned the task of evaluating two mutually exclusive projects with the following projected cash flows. year. Project A (cash flow) Project B 0 $(102,000) $(102,000) 1 31,000 0 2 31,000 0 3 31,000 0 4 31,000 0 5 31,000 240,000 if the appropriate discount rate on these is 11 percent, which would be chosen and why? the NPV of project A is $
CAPITAL BUDGETING CRITERIA: MUTUALLY EXCLUSIVE PROJECTS Project S requires an initial outlay at t = 0 of 17,000, and its expected cash flows would be 5,000 per year for 5 years. Mutually exclusive Project L requires an initial outlay at t = 0 of 30,000, and its expected cash flows would be 8,750 per year for 5 years. If both projects have a WACC of 12%, which project would you recommend? Explain.
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Consider the following two projects, X and Y: Period Project X Project Y 0 $(100,000) $(120,000) 1 $22,000 $0 2 $22,000 $0 3 $22,000 $0 4 $22,000 $0 5 $45,000 $175,000 Regarding the internal rate of return, which of the following statements is correct? The internal rate of return of Project Y is greater than the internal rate of return of Project X. The internal rate of return of Project X is equal to the internal rate of return of Project Y. O The internal rate of return of Project X is greater than the internal rate of return of Project Y. The internal rate of return of Projects X and Y cannot be determined based on this information.
Comparing Investment Criteria [L01,2,3,5,7] Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 -$300,000 -$40,000 1 20,000 19,000 2 50,000 12,000 3 50,000 18,000 4 390,000 10,500 Whichever project you choose, if any, you require a 15 per cent return on your investment. a. If you apply the payback criterion, which will you choose? Why? b. If you apply the discounted payback criterion, which investment will you choose? Why? c. If you apply the NPV criterion, which investment will you choose? Why? d. If you apply the IRR criterion, which investment will you choose? Why? e. If you apply the profitability index criterion, which investment will you choose? Why? f. Based on your answers in (a) through (e), which project will you finally choose? Why? Please explain your calculations and conclusions
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Year Cashflow Interest rate 11% 0 (294,000) 1 106,448 2 97,628 3 88,808 4 127,518 Calculate the Project's NPV, IRR, MIRR, and payback. Do these indicators suggest that the project should be accepted? Explain
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Please explain both subparts
11. IRR rule (S5.3) Consider the following two mutually exclusive projects: Cash flows ($) Project A B Co -50 -50 C₁ +60 0 C₂ +60 0 0 +140 Page 142 a. Calculate the NPV of each project for discount rates of 0%, 10%, and 20%. Plot these on a graph with NPV on the vertical axis and discount rate on the horizontal axis. b. What is the approximate IRR for each project? c. In what circumstances should the company accept project A? d. Calculate the NPV of the incremental investment (B – A) for discount rates of 0%, 10%, and 20%. Plot these on your graph. Show that the circumstances in which you would accept A are also those in which the IRR on the incremental investment is less than the opportunity cost of capital.