Problem 10-13 NPV and IRR Analysis PLEASE HELP ME FILL IN THE BLANKS! MOST OF TH

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Problem 10-13
NPV and IRR Analysis

PLEASE HELP ME FILL IN THE BLANKS! MOST OF THE PROBLEM IS COMPLETE BELOW! I CAN'T FIGURE OUT PART D OR E, THANKS!

Cummings Products Company is considering two mutually exclusive investments whose expected net cash flows are as follows:

Construct NPV profiles for Projects A and B.

Select the correct graph.

The correct graph is B

B) What is each project's IRR? Round your answers to two decimal places.

Project A 18.00%
Project B 27.00%

C) Calculate the two projects' NPVs, if you were told that each project's cost of capital was 10%. Round your answers to the nearest cent.
Project A  $283.36
Project B  $247.34

Which project, if either, should be selected?
Project A

Calculate the two projects' NPVs, if the cost of capital was 17%. Round your answers to the nearest cent.
Project A  $31.06 {C}
Project B  $120.59{C}

What would be the proper choice?
Project B {C}

D) What is each project's MIRR at a cost of capital of 10%? (Hint: Note that B is a 6-year project.) Round your answers to two decimal places.
Project A __%
Project B __%

What is each project's MIRR at a cost of capital of 17%? (Hint: Note that B is a 6-year project.) Round your answer to two decimal places.
Project A __ %
Project B __ %

E) What is the crossover rate? Round your answer to two decimal places.
%

What is its significance?

EXPECTED NET CASH FLOWS Year Project A Project B 0 -$300 -$405 1 -387 134 2 -193 134 3 -100 134 4 600 134 5 600 134 6 850 134 7 -180 134

Explanation / Answer

D) What is each project's MIRR at a cost of capital of 10%? (Hint: Note that B is a 6-year project.) Round your answers to two decimal places.

Project A

FV of Cash Inflow = 600*1.10^3 + 600*1.10^2 + 850*1.10

FV of Cash Inflow = $ 2459.60

PV of cash outflow = 300 + 387/1.1 + 193/1.1^2 + 100/1.1^3 + 180/1.1^7

PV of cash outflow = 978.82

MIRR= (FV of Cash Inflow/PV of cash outflow)^(1/n) -1

MIRR= (2459.60/978.82)^(1/7) -1

MIRR= 14.07%

Project B

FV of Cash Inflow = 134*((1+10%)^6-1)/10%

FV of Cash Inflow = $ 1033.89

PV of cash outflow = 405

MIRR= (FV of Cash Inflow/PV of cash outflow)^(1/n) -1

MIRR= (1033.89/405)^(1/6) -1

MIRR= 16.91%

Project A 14.07 %
Project B 16.91 %

What is each project's MIRR at a cost of capital of 17%? (Hint: Note that B is a 6-year project.) Round your answer to two decimal places.

Project A

FV of Cash Inflow = 600*1.17^3 + 600*1.17^2 + 850*1.17

FV of Cash Inflow = $ 2776.81

PV of cash outflow=300 + 387/1.17 + 193/1.17^2 + 100/1.17^3 + 180/1.17^7

PV of cash outflow = 894.17

MIRR= (FV of Cash Inflow/PV of cash outflow)^(1/n) -1

MIRR= (2776.81/894.17)^(1/7) -1

MIRR= 17.57%

Project B

FV of Cash Inflow = 134*((1+17%)^6-1)/17%

FV of Cash Inflow = $ 1233.72

PV of cash outflow = 405

MIRR= (FV of Cash Inflow/PV of cash outflow)^(1/n) -1

MIRR= (1233.72/405)^(1/6) -1

MIRR= 20.40%

Project A 17.57 %
Project B 20.40 %

E) What is the crossover rate? Round your answer to two decimal places.

using Excel formula

crossover rate= irr(value)

crossover rate = irr({105,-521,-327,-234,466,466,716,-314})

crossover rate = 11.69%

What is its significance?

It is significant in decision making on the basis of cost of capitall change. if higher cost of capital than different project may be selected.

EXPECTED NET CASH FLOWS Year Project A Project B Difference 0 ($300) ($405) $105 1 -387 134 ($521) 2 -193 134 ($327) 3 -100 134 ($234) 4 600 134 $466 5 600 134 $466 6 850 134 $716 7 -180 134 ($314)

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