A company has a 12% WACC and is considering two mutually exclusive investments (

Question

A company has a 12% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following cash flows: What is each project's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations. What is each project's IRR? Round your answer to two decimal places. What is each project's MIRR? Round your answer to two decimal places. Do not round your intermediate calculations. From your answers to parts a-c, which project would be selected? If the WACC was 18%, which project would be selected? Construct NPV profiles for Projects A and B. Round your answers to the nearest cent. Do not round your intermediate calculations. Negative value should be indicated by a minus sign.

Explanation / Answer

Project A Project B PV @12% Present Value Project A Present Value Project B Year Cash Flows Cash Flows 0 -$300 -$405 1 -$300 -$405 1 -$387 $134 0.8929 -$345.54 $119.64 2 -$193 $134 0.7972 -$153.86 $106.82 3 -$100 $134 0.7118 -$71.18 $95.38 4 $600 $134 0.6355 $381.31 $85.16 5 $600 $134 0.5674 $340.46 $76.04 6 $850 $134 0.5066 $430.64 $67.89 7 -$180 $0 0.4523 -$81.42 $0 NPV $200.41 $145.93 IRR 18.10% 23.97% MIRR(Payments, finance rate , 12%) MIRR 16.34% 17.03% Finance Rate = IRR Project A Project B a)NPV $200.41 $145.93 b)IRR 18.10% 23.97% c)MIRR 16.34% 17.03% d) Project A would be selected Project A Project B PV @18% Present Value Project A Present Value Project B Year Cash Flows Cash Flows 0 -$300 -$405 1 -$300 -$405 1 -$387 $134 0.8475 -$327.97 $113.56 2 -$193 $134 0.7182 -$138.61 $96.24 3 -$100 $134 0.6086 -$60.86 $81.56 4 $600 $134 0.5158 $309.47 $69.12 5 $600 $134 0.4371 $262.27 $58.57 6 $850 $134 0.3704 $314.87 $49.64 7 -$180 $0 0.3139 -$56.51 $0 NPV $2.66 $63.68 Project B would be selected if WACC is 18%. e) Discount rate NPV Project A NPV project B 0.00% $890 $399 5.00% $540.09 $275.14 10.00% $283.34 $178.6 12.00% $200.41 $145.93 15.00% $92.96 $102.12 18.10% -$0.09 $62.48 24.51% -$147.63 -$5.02 NPV is calculated using NPV funcion NPV(discount rate, payments)-initial investments

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