Gardial Fisheries is considering two mutually exclusive investments. The project

Question

Gardial Fisheries is considering two mutually exclusive investments. The projects' expected net cash flows are as follows:

Expected Net Cash Flows

I really appreciate all of your help for this! I am so incredibly lost, so please post the working file so I can see how you got to the answer! Again, thank you for your help!

Time Project A Project B 0 -$375 -$575 1 -$300 $190 2 -$200 $190 3 -$100 $190 4 $600 $190 5 $600 $190 6 $926 $190 7 -$200 $0 a. If each project's cost of capital is 11%, which project should be selected? If the cost of capital is 17%, what project is the proper choice? @ 11% cost of capital WACC = NPV A = @ 17% cost of capital Use Excel's NPV function as explained 17% in this chapter's Tool Kit. Note that the 11% $242.65" $206.13 WACC = NPV A = NPV B= range does not include the costs, which $41.25 are added separately VA= $91.41 NPV B

Explanation / Answer

a) Evaluation of viability of the projects which are mutually exclusive van be done by considering the NPV method.

Based on NPV method , Which projects gives more NPV should be selected .

in case of WACC is 11% in $

since Project A is having more NPV than Project B , Project A should be selected as both are mutually exclusive eventhough project B gives Positive NPV .

in case of WACC is 17%

since Project B is having more NPV than Project A , Project B should be selected as both are mutually exclusive eventhough project A gives Positive NPV .

c) IRR computation

IRR is computed by using excel function i.e, =IRR(sum of all cash flows)

Year Project A DF@11% d cash flows Project B DF@11% Discounted cash flows 0 -375.00 1 -375        -575 1 -575 1 -300.00    0.9009 -270         190    0.9009 171 2 -200.00    0.8116 -162         190    0.8116 154 3 -100.00    0.7312 -73         190    0.7312 139 4    600.00    0.6587 395         190    0.6587 125 5    600.00    0.5935 356         190    0.5935 113 6    926.00    0.5346 495         190    0.5346 102 7 -200.00    0.4817 -96             -      0.4817 0 NPV 269 NPV 229

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