A company has a 13% 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 $131 $131 $131 $131 $131 $131 $0 The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. 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: %
A company has a 13% 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 | $131 | $131 | $131 | $131 | $131 | $131 | $0 |
The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.
-
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?
_________Project AProject B
If the WACC was 18%, which project would be selected?
_________Project AProject B
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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 $ $ 23.01 $ $ -
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: %
Capital budgeting criteria
WACC 13.00%
0 1 2 3 4 5 6 7
Project A -$300 -$387 -$193 -$100 $600 $600 $850 -$180
Project B -$405 $131 $131 $131 $131 $131 $131 $0
Project NPV Calculations: Formulas
NPVA #N/A
NPVB #N/A
Project IRR Calculations:
IRRA #N/A
IRRB #N/A
Project MIRR Calculations:
MIRRA #N/A
Alternatively, MIRRA can be calculated as:
0 1 2 3 4 5 6 7
Project A -$300 -$387 -$193 -$100 $600 $600 $850 -$180
Formulas
PV of Year 1 Outflow #N/A
PV of Year 2 Outflow #N/A
PV of Year 3 Outflow #N/A
PV of Year 7 Outflow #N/A Formulas
#N/A FV of Year 6 Inflow at Year 7
#N/A FV of Year 5 Inflow at Year 7
#N/A FV of Year 4 Inflow at Year 7
Sum of Outflow PVs #N/A #N/A Sum of Inflow FVs
N 7 Formulas
PV $0.00
PMT 0
FV $0.00
I/YR = MIRRA #N/A
MIRRB #N/A
Alternatively, MIRRB can be calculated as:
0 1 2 3 4 5 6 7
Project B -$405 $131 $131 $131 $131 $131 $131 $0
Formulas
#N/A FV of Year 6 Inflow at Year 7
#N/A FV of Year 5 Inflow at Year 7
#N/A FV of Year 4 Inflow at Year 7
#N/A FV of Year 3 Inflow at Year 7
#N/A FV of Year 2 Inflow at Year 7
#N/A FV of Year 1 Inflow at Year 7
Sum of Outflow PVs #N/A #N/A Sum of Inflow FVs
N 7 Formulas
PV $0.00
PMT 0
FV $0.00
I/YR = MIRRB #N/A
Project Acceptance:
WACC 13.00%
Accept #N/A
WACC 18.00%
NPVA $2.66
NPVB $53.19
Accept #N/A
NPV Profiles:
Discount Rates NPVA NPVB Discount Rates NPVA NPVB
$2.66 $53.19 $2.66 $53.19
0% 0% #N/A #N/A
5.00% 5.00% #N/A #N/A
10.00% 10.00% #N/A #N/A
12.00% 12.00% #N/A #N/A
15.00% 15.00% #N/A #N/A
18.10% 18.10% #N/A #N/A
23.01% 23.01% #N/A #N/A
Calculation of Crossover Rate:
0 1 2 3 4 5 6 7
Project A -$300 -$387 -$193 -$100 $600 $600 $850 -$180
Project B -$405 $131 $131 $131 $131 $131 $131 $0
Project Delta
#N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A
Crossover Rate = IRRΔ #N/A
Project MIRR Calculations at WACC = 18%
WACC 18.00%
MIRRA #N/A
MIRRB #N/A
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