Q) A firm has a WACC of 9.60% and is deciding between two mutually exclusive pro
ID: 2614211 • Letter: Q
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Q) A firm has a WACC of 9.60% and is deciding between two mutually exclusive projects. Project A has an initial investment of $60.12. The additional cash flows for project A are: year 1 = $19.64, year 2 = $35.94, year 3 = $43.15. Project B has an initial investment of $74.74. The cash flows for project B are: year 1 = $57.52, year 2 = $47.69, year 3 = $31.12. Calculate the Following: -Payback Period for Project A: -Payback Period for Project B: -NPV for Project A: -NPV for Project B: Q2) Project Z has an initial investment of $62,309.00 . The project is expected to have cash inflows of $20,282.00 at the end of each year for the next 11.0 years. The corporation has a WACC of 12.35%. Calculate the NPV for project Z. Q) A firm has a WACC of 9.60% and is deciding between two mutually exclusive projects. Project A has an initial investment of $60.12. The additional cash flows for project A are: year 1 = $19.64, year 2 = $35.94, year 3 = $43.15. Project B has an initial investment of $74.74. The cash flows for project B are: year 1 = $57.52, year 2 = $47.69, year 3 = $31.12. Calculate the Following: -Payback Period for Project A: -Payback Period for Project B: -NPV for Project A: -NPV for Project B: Q2) Project Z has an initial investment of $62,309.00 . The project is expected to have cash inflows of $20,282.00 at the end of each year for the next 11.0 years. The corporation has a WACC of 12.35%. Calculate the NPV for project Z.Explanation / Answer
Q1) Project A Project B Payaback Period 2.11 Years 1.36 Years NPV $ 20.49 $ 41.08 Working: Project A Year Cash fows Cumulative cash flows Discount factor Present Value a b c d=1.096^-a b*d 0 $ -60.12 $ -60.12 1.000 $ -60.12 1 19.64 -40.48 0.912 17.92 2 35.94 -4.54 0.832 29.92 3 43.15 38.61 0.760 32.78 Total 20.49 Payaback period = 2+(4.54/43.15) = 2.11 Years Project B Year Cash fows Cumulative cash flows Discount factor Present Value a b c d=1.096^-a b*d 0 $ -74.74 $ -74.74 1.000 $ -74.74 1 57.52 -17.22 0.912 52.48 2 47.69 30.47 0.832 39.70 3 31.12 61.59 0.760 23.64 Total 41.08 Payaback period = 1+(17.22/47.69) = 1.36 Years Q2) NPV $ 56,299.33 Working: a. Present Value of annuity of 1 = (1-(1+i)^-n)/i Where, = (1-(1+0.1235)^-11)/0.1235 i 12.35% = 5.848 n 11 b. Present value of annual cash inflows $ 20,282.00 x 5.848 = $ 1,18,608.33 Less:Costs of Project $ 62,309.00 NPV $ 56,299.33
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