Homework Help is Here – Start Your Trial Now!
Business
Finance
A company is considering two mutually exclusive expansion plans. Plan A requires a $41 million expenditure on a large-scale integrated plant that would provide expected cash flows of $6.55 million per year for 20 years. Plan B requires a $12 million expenditure to build a somewhat less efficient, more labor-intensive plant with an expected cash flow of $2.69 million per year for 20 years. The firm's WACC is 10%. 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.     Open spreadsheet   Calculate each project's NPV. Round your answers to two decimal places. Do not round your intermediate calculations. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Plan A: $  fill in the blank 2 million Plan B: $  fill in the blank 3 million Calculate each project's IRR. Round your answer to two decimal places. Plan A: fill in the blank 4% Plan B: fill in the blank 5% By graphing the NPV profiles for Plan A and Plan B, approximate the crossover rate to the nearest percent. fill in the blank 6% Calculate the crossover rate where the two projects' NPVs are equal. Round your answer to two decimal places. fill in the blank 7%

A company is considering two mutually exclusive expansion plans. Plan A requires a $41 million expenditure on a large-scale integrated plant that would provide expected cash flows of $6.55 million per year for 20 years. Plan B requires a $12 million expenditure to build a somewhat less efficient, more labor-intensive plant with an expected cash flow of $2.69 million per year for 20 years. The firm's WACC is 10%. 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.     Open spreadsheet   Calculate each project's NPV. Round your answers to two decimal places. Do not round your intermediate calculations. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Plan A: $  fill in the blank 2 million Plan B: $  fill in the blank 3 million Calculate each project's IRR. Round your answer to two decimal places. Plan A: fill in the blank 4% Plan B: fill in the blank 5% By graphing the NPV profiles for Plan A and Plan B, approximate the crossover rate to the nearest percent. fill in the blank 6% Calculate the crossover rate where the two projects' NPVs are equal. Round your answer to two decimal places. fill in the blank 7%

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
See similar textbooks
icon
Related questions
Question

A company is considering two mutually exclusive expansion plans. Plan A requires a $41 million expenditure on a large-scale integrated plant that would provide expected cash flows of $6.55 million per year for 20 years. Plan B requires a $12 million expenditure to build a somewhat less efficient, more labor-intensive plant with an expected cash flow of $2.69 million per year for 20 years. The firm's WACC is 10%. 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.

 

 
Open spreadsheet

 

  1. Calculate each project's NPV. Round your answers to two decimal places. Do not round your intermediate calculations. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55.

    Plan A: $  fill in the blank 2 million

    Plan B: $  fill in the blank 3 million

    Calculate each project's IRR. Round your answer to two decimal places.

    Plan A: fill in the blank 4%

    Plan B: fill in the blank 5%

  2. By graphing the NPV profiles for Plan A and Plan B, approximate the crossover rate to the nearest percent.

    fill in the blank 6%

  3. Calculate the crossover rate where the two projects' NPVs are equal. Round your answer to two decimal places.

    fill in the blank 7%

This spreadsheet provides a detailed financial analysis involving Net Present Value (NPV) calculations for two investment plans—Plan A and Plan B—considering various discount rates. ### Spreadsheet Breakdown: **Header Information:** - The header indicates the NPV profiles with a focus on the Weighted Average Cost of Capital (WACC), set at 10.00%. **Data Table:** - The amounts in millions for Plan A and Plan B are outlined horizontally across columns. - Plan A ranges from $41.00 to $86.55. - Plan B remains constant at $2.69 throughout. **Formulas for Project Calculations:** 1. **NPV Calculations:** - Both Plan A and Plan B list formulas involving `IRNA`. 2. **IRR Calculations:** - Internal Rate of Return for both projects is denoted by `IRNA` and `IRNB`. **NPV Profile Table:** - **Discount Rates:** Ranges from 0% to 25%. - **NPVA and NPVB:** The net present values for varying rates, all resulting in $0.00. **Graph: NPV Profiles** - The graph visually represents the NPV Profiles, highlighting their values across the specified discount rates. Currently, no graphical lines or data trends are visible under these settings. **Crossover Rate Section:** - Indicates calculations for the crossover rate, or the rate at which two project NPVs are equivalent: - Formulas used here include `IRNA` for crossover calculations. **Conclusion:** This document appears to be a setup for financial modeling, particularly in evaluating two investment options over different time frames and discount rates. Calculations and adjustments based on real input values and formulas (not fully specified here) need to be applied to receive meaningful outputs. This setup is valuable for educational purposes, illustrating how financial decisions can be modeled through quantitative analysis and visual representations.
Transcribed Image Text:This spreadsheet provides a detailed financial analysis involving Net Present Value (NPV) calculations for two investment plans—Plan A and Plan B—considering various discount rates. ### Spreadsheet Breakdown: **Header Information:** - The header indicates the NPV profiles with a focus on the Weighted Average Cost of Capital (WACC), set at 10.00%. **Data Table:** - The amounts in millions for Plan A and Plan B are outlined horizontally across columns. - Plan A ranges from $41.00 to $86.55. - Plan B remains constant at $2.69 throughout. **Formulas for Project Calculations:** 1. **NPV Calculations:** - Both Plan A and Plan B list formulas involving `IRNA`. 2. **IRR Calculations:** - Internal Rate of Return for both projects is denoted by `IRNA` and `IRNB`. **NPV Profile Table:** - **Discount Rates:** Ranges from 0% to 25%. - **NPVA and NPVB:** The net present values for varying rates, all resulting in $0.00. **Graph: NPV Profiles** - The graph visually represents the NPV Profiles, highlighting their values across the specified discount rates. Currently, no graphical lines or data trends are visible under these settings. **Crossover Rate Section:** - Indicates calculations for the crossover rate, or the rate at which two project NPVs are equivalent: - Formulas used here include `IRNA` for crossover calculations. **Conclusion:** This document appears to be a setup for financial modeling, particularly in evaluating two investment options over different time frames and discount rates. Calculations and adjustments based on real input values and formulas (not fully specified here) need to be applied to receive meaningful outputs. This setup is valuable for educational purposes, illustrating how financial decisions can be modeled through quantitative analysis and visual representations.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps with 2 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Valuing Decision
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS