A company is considering two mutually exclusive expansion plans. Plan A requires a $39 million initial outlay on a large-scale integrated plant that would provide expected cash flows of $6.23 million per year for 20 years. Plan B requires a $11 million initial outlay to build a somewhat less efficient, more labor-intensive plant with expected cash flows of $2.47 million per year for 20 years. The firm's WACC is 10%. Calculate each project's NPV. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round your answers to two decimal places. Plan A: $ million Plan B: $ million Calculate each project's IRR. Round your answers to one decimal place. Plan A: % Plan B: % By graphing the NPV profiles for Plan A and Plan B, determine the crossover rate. Approximate your answer to the nearest whole number. % Calculate the crossover rate where the two projects' NPVs are equal. Round your answer to one decimal place. % Is NPV better than IRR for making capital budgeting decisions that add to shareholder value? Yes or No
A company is considering two mutually exclusive expansion plans. Plan A requires a $39 million initial outlay on a large-scale integrated plant that would provide expected cash flows of $6.23 million per year for 20 years. Plan B requires a $11 million initial outlay to build a somewhat less efficient, more labor-intensive plant with expected cash flows of $2.47 million per year for 20 years. The firm's WACC is 10%.
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Calculate each project's
NPV . Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round your answers to two decimal places.Plan A: $ million
Plan B: $ million
Calculate each project's
IRR . Round your answers to one decimal place.Plan A: %
Plan B: %
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By graphing the NPV profiles for Plan A and Plan B, determine the crossover rate. Approximate your answer to the nearest whole number.
%
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Calculate the crossover rate where the two projects' NPVs are equal. Round your answer to one decimal place.
%
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Is NPV better than IRR for making capital budgeting decisions that add to shareholder value?
Yes or No
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