A company has a 13% WACC and is considering two mutually exclusive investments (

Question

A company has a 13% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following cash flows: 0 1 2 3 4 5 6 7 Project A -$300 -$387 -$193 -$100 $600 $600 $850 -$180 Project B -$400 $134 $134 $134 $134 $134 $134 $0

a. What is each project's NPV? Round your answer to the nearest cent. Project A $ Project B $

b. What is each project's IRR? Round your answer to two decimal places. Project A % Project B %

c. What is each project's MIRR? (Hint: Consider Period 7 as the end of Project B's life.) Round your answer to two decimal places. Project A % Project B %

D.Construct NPV profiles for Plans A and B. Round your answers to the nearest cent.

E.Calculate the crossover rate where the two projects' NPVs are equal. Round your answer to two decimal places.
{C}%

F. What is each project's MIRR at a WACC of 18%? Round your answer to two decimal places.
Project A %
Project B %

Discount Rate NPV Plan A NPV Plan B 0% $   $   5 $   $   10 $   $   12 $   $   15 $   $   18.1 $   $   24.51 $   $  

Explanation / Answer

The NPV is present value of all cashflows = -300 + -387/1.13 +......-180/1.13^6

Modified internal rate of return (MIRR) assumes that positive cash flows are reinvested at the firm's cost of capital, and the initial outlays are financed at the firm's financing cost, while the internal rate of return (IRR) assumes the cash flows from a project are reinvested at the IRR

MIRR we can find the future value of cashlows and then calculat the IRR

You can use excel value to calculate mirr with finannce rate =0 and reinvestment rate 13%

MIRR for peoject A= 12%

MIRR for peject B =18%

Cashflow A Cashflows B -300 -400 -387 134 -193 134 -100 134 600 134 600 134 850 134 -180 0 NPV 143.78 120.06 IRR 18% 25%

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