If the WACC was 5% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 48.57%.) a. Project A b. Project B c. Neither Project A or B If the WACC was 10% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 48.57%.) a. Project A b. Project B c. Neither Project A or B If the WACC was 15% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 48.57%.) a. Project A b. Project B c. Neither Project A or B
If the WACC was 5% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 48.57%.) a. Project A b. Project B c. Neither Project A or B If the WACC was 10% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 48.57%.) a. Project A b. Project B c. Neither Project A or B If the WACC was 15% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 48.57%.) a. Project A b. Project B c. Neither Project A or B
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
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Please solve for the following problem on the image.
If the WACC was 5% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 48.57%.)
a. Project A
b. Project B
c. Neither Project A or B
If the WACC was 10% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 48.57%.)
a. Project A
b. Project B
c. Neither Project A or B
If the WACC was 15% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 48.57%.)
a. Project A
b. Project B
c. Neither Project A or B
Transcribed Image Text:**Cash Flow Evaluation for Projects**
Your division is considering two projects with the following cash flows (in millions):
| Year | 0 | 1 | 2 | 3 |
|------|-------|-------|------|------|
| Project A | $-16 | $7 | $9 | $10 |
| Project B | $-26 | $14 | $20 | $11 |
### Tasks:
**a. Net Present Value (NPV) Calculations**
Calculate the projects' NPVs for the given Weighted Average Cost of Capital (WACC) rates. Enter your answers 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.
1. **NPV with a WACC of 5%**
- Project A: \_\_\_\_ million
- Project B: \_\_\_\_ million
2. **NPV with a WACC of 10%**
- Project A: \_\_\_\_ million
- Project B: \_\_\_\_ million
3. **NPV with a WACC of 15%**
- Project A: \_\_\_\_ million
- Project B: \_\_\_\_ million
**b. Internal Rate of Return (IRR) Calculations**
Determine the projects' IRRs for the given WACC values. Do not round intermediate calculations. Round your answer to two decimal places.
1. **IRR with a WACC of 5%**
- Project A: \_\_\_\_ %
- Project B: \_\_\_\_ %
2. **IRR with a WACC of 10%**
- Project A: \_\_\_\_ %
- Project B: \_\_\_\_ %
3. **IRR with a WACC of 15%**
- Project A: \_\_\_\_ %
- Project B: \_\_\_\_ %
These calculations will help in understanding which project provides a better return on investment by measuring the NPV and IRR at different discount rates.
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