NPV Your division is considering two projects with the following cash flows (in
ID: 2769170 • Letter: N
Question
NPV Your division is considering two projects with the following cash flows (in millions): 0 1 2 3 Project A -$11 $4 $7 $1 Project B -$20 $12 $5 $9 What are the projects' NPVs assuming the WACC is 5%? Round your answer to two decimal places. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Project A $ million Project B $ million What are the projects' NPVs assuming the WACC is 10%? Round your answer to two decimal places. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Project A $ million Project B $ million What are the projects' NPVs assuming the WACC is 15%? Round your answer to two decimal places. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Project A $ million Project B $ million What are the projects' IRRs assuming the WACC is 5%? Round your answer to two decimal places. Project A % Project B % What are the projects' IRRs assuming the WACC is 10%? Round your answer to two decimal places. Project A % Project B % What are the projects' IRRs assuming the WACC is 15%? Round your answer to two decimal places. Project A % Project B %
Explanation / Answer
Part 1:
5%
NPV (Project A) = -11 + 4/(1+.05)^ + 7/(1+.05)^2 + 1/(1+.05)^3 = -7.56 million
NPV (Project B) = -20 + 12/(1+.05)^ + 5/(1+.05)^2 + 9/(1+.05)^3 = -3.70 million
10%
NPV (Project A) = -11 + 4/(1+.10)^ + 7/(1+.10)^2 + 1/(1+.10)^3 = -8.55 million
NPV (Project B) = -20 + 12/(1+.10)^ + 5/(1+.10)^2 + 9/(1+.10)^3 = -7.08 million
15%
NPV (Project A) = -11 + 4/(1+.15)^ + 7/(1+.15)^2 + 1/(1+.15)^3 = -9.21 million
NPV (Project B) = -20 + 12/(1+.15)^ + 5/(1+.15)^2 + 9/(1+.15)^3 = -9.57 million
Part 2:
5%
IRR (Project A) = 5.12%
IRR (Project B) = 15.43%
10%
IRR (Project A) = 5.12%
IRR (Project B) = 15.43%
15%
IRR (Project A) = 5.12%
IRR (Project B) = 15.43%
Notes:
IRR would continue to remain same irrespective of WACC.
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