A company is considering two mutually exclusive expansion plans. Plan A requires

Question

A company is considering two mutually exclusive expansion plans. Plan A requires a $39 million expenditure on a large-scale integrated plant that would provide expected cash flows of $6.23 million per year for 20 years. Plan B requires a $13 million expenditure to build a somewhat less efficient, more labor-intensive plant with an expected cash flow of $2.91 million per year for 20 years. The firm's WACC is 10%.

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

Plan A $_______million
Plan B $_______million

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

Plan A _____%
Plan B _____%

Graph the NPV profiles for Plan A and Plan B and approximate the crossover rate to the nearest percent.

_____%

2. Calculate the crossover rate where the two projects' NPVs are equal. Round your answer to the nearest hundredth.

_______%

Explanation / Answer

Plan A: NPV = $14.04million , IRR= 15%
Plan B: NPV= $11.77million , IRR= 22%

Cross over rate+ 11.26%

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