Percentages need to be entered in decimal format, for instance 3% would be entered as .03. West Coast Chemical Company (WCCC) is considering two mutually exclusive investments - Project A and Project B. The projects' expected net cash flows for Years 0-5 are shown in the spreadsheet provided. Based on the information in the spreadsheet, what is the NPV for Project A and Project B based on the required return of 10%? What is each project's IRR? If the required rate of return for each project is 13%, which project should West Coast select? If the required rate of return is 9%, what would be the proper choice? If the required rate of return is 15%, what would be the proper choice? For each scenario, explain why you chose the particular project. Refer to the Model-Generated Data portion of the spreadsheet and identify at what rate the NPV profiles for the two projects cross. The spreadsheet shows that Project A has a large cash flow in Year 5 associated with ending the project. WCCC's management is confident of Project A's cash flows in Years 0 to 4, but is uncertain about what its Year 5 cash flow will be. There is no uncertainty about Project B's cash flows. Under a worst-case scenario, Project A's Year 5 cash flow will be $40,000. Assuming a 13% required rate of return, what are the NPV profiles for Projects A and B? What are each project's IRR? Which project should be selected? Why? Based on the information provided in Question 4, the best-case scenario estimates Project A's cash flow will be $50,000. Assuming the same 13% required rate of return, what are the NPV profiles for Projects A and B? What are each project's IRR? Which project should be selected? Why?
Percentages need to be entered in decimal format, for instance 3% would be entered as .03. West Coast Chemical Company (WCCC) is considering two mutually exclusive investments - Project A and Project B. The projects' expected net cash flows for Years 0-5 are shown in the spreadsheet provided. Based on the information in the spreadsheet, what is the NPV for Project A and Project B based on the required return of 10%? What is each project's IRR? If the required rate of return for each project is 13%, which project should West Coast select? If the required rate of return is 9%, what would be the proper choice? If the required rate of return is 15%, what would be the proper choice? For each scenario, explain why you chose the particular project. Refer to the Model-Generated Data portion of the spreadsheet and identify at what rate the NPV profiles for the two projects cross. The spreadsheet shows that Project A has a large cash flow in Year 5 associated with ending the project. WCCC's management is confident of Project A's cash flows in Years 0 to 4, but is uncertain about what its Year 5 cash flow will be. There is no uncertainty about Project B's cash flows. Under a worst-case scenario, Project A's Year 5 cash flow will be $40,000. Assuming a 13% required rate of return, what are the NPV profiles for Projects A and B? What are each project's IRR? Which project should be selected? Why? Based on the information provided in Question 4, the best-case scenario estimates Project A's cash flow will be $50,000. Assuming the same 13% required rate of return, what are the NPV profiles for Projects A and B? What are each project's IRR? Which project should be selected? Why?
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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Percentages need to be entered in decimal format, for instance 3% would be entered as .03.
West Coast Chemical Company (WCCC) is considering two mutually exclusive investments - Project A and Project B. The projects' expected net cash flows for Years 0-5 are shown in the spreadsheet provided.
- Based on the information in the spreadsheet, what is the
NPV for Project A and Project B based on the required return of 10%? What is each project'sIRR ? - If the required
rate of return for each project is 13%, which project should West Coast select? If the required rate of return is 9%, what would be the proper choice? If the required rate of return is 15%, what would be the proper choice? For each scenario, explain why you chose the particular project. - Refer to the Model-Generated Data portion of the spreadsheet and identify at what rate the NPV profiles for the two projects cross.
- The spreadsheet shows that Project A has a large cash flow in Year 5 associated with ending the project. WCCC's management is confident of Project A's cash flows in Years 0 to 4, but is uncertain about what its Year 5 cash flow will be. There is no uncertainty about Project B's cash flows. Under a worst-case scenario, Project A's Year 5 cash flow will be $40,000. Assuming a 13% required rate of return, what are the NPV profiles for Projects A and B? What are each project's IRR? Which project should be selected? Why?
- Based on the information provided in Question 4, the best-case scenario estimates Project A's cash flow will be $50,000. Assuming the same 13% required rate of return, what are the NPV profiles for Projects A and B? What are each project's IRR? Which project should be selected? Why?
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