mpany has a 12% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following cash flows: Project A: -300, -387, -193, -100, 600, 600, 850, -180 Project B: -400, 135, 135, 135, 135, 135, 135, 0 0 1 2 3 4 5 6 7 Project A -$300 -$387 -$193 -$100 $600 $600 $850 -$180 Project B -$400 $135 $135 $135 $135 $135 $135 $0 a. What is each project's NPV? project A $ project B $ Formula:
mpany has a 12% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following cash flows: Project A: -300, -387, -193, -100, 600, 600, 850, -180 Project B: -400, 135, 135, 135, 135, 135, 135, 0 0 1 2 3 4 5 6 7 Project A -$300 -$387 -$193 -$100 $600 $600 $850 -$180 Project B -$400 $135 $135 $135 $135 $135 $135 $0 a. What is each project's NPV? project A $ project B $ Formula:
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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A company has a 12% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following cash flows:
Project A: -300, -387, -193, -100, 600, 600, 850, -180
Project B: -400, 135, 135, 135, 135, 135, 135, 0
| 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 |
| Project A | -$300 | -$387 | -$193 | -$100 | $600 | $600 | $850 | -$180 |
| Project B | -$400 | $135 | $135 | $135 | $135 | $135 | $135 | $0 |
a. What is each project's
project A $
project B $
Formula:
b. What is each project's
project A $
project B $
Formula:
c. What is each project's MIRR?
project A $
project B $
Formula:
d.1 From your answers to Parts a, b, and c, which project would be selected?
d.2 If the WACC was 18%, which project would be selected?
e. Construct NPV profiles for Projects A and B
discount rate NPV PLAN B. NPV PLAN B
| Discount Rate | NPV Project A | NPV Project B |
| 0% | $ | $ |
| 5 | ||
| 10 | ||
| 12 | ||
| 15 | ||
| 18.1 | ||
| 24.83 |
Formula:
f. Calculate the crossover rate where the two projects' NPVs are equal.
Formula:
g. What is each project's MIRR at a WACC of 18%
Formula:
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