NPV Your division is considering two projects with the following cash flows (in
ID: 2773368 • Letter: N
Question
NPV
Your division is considering two projects with the following cash flows (in millions):
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
NPV = C1/(1 +r)1 + C2 / ( 1+ r)2 + C3 / (1 + r)3 - C0
Project A : Project B
C0 = Initial Investment = 11 C0 = Initial Investment = 20
C1= Net Cash Inflow year 1 = 4 C1= Net Cash Inflow year 1 = 12
C2= Net Cash Inflow year 2 = 7 C2= Net Cash Inflow year 2 = 5
C3= Net Cash Inflow year 3 = 1 C3= Net Cash Inflow year 3 = 9
r = 5% = 5/100 = 0.05 r = 5% = 5/100 = 0.05
NPV for Project A at WACC 5 % = 4/ (1 +.05)1+ 7 / ( 1+0.05)2 + 1 / ( 1+ 0.05)3 - 11
= 4/ 1.05 + 7/1.1025 + 1 / 1.1576 - 11
= 3.8095 + 6.3492 + 0.8639 - 11
= 11.02 - 11.00
= 0.02 million
NPV for Project B at WACC 5 % = 12/ (1 +.05)1+ 5 / ( 1+0.05)2 + 9 / ( 1+ 0.05)3 - 20
= 12/ 1.05 + 5/1.1025 + 9 / 1.1576 - 20
= 11.4286 + 4.5351 + 7.7747 - 20
= 23.74 - 20
= 3.74 million
Project A : Project B
C0 = Initial Investment = 11 C0 = Initial Investment = 20
C1= Net Cash Inflow year 1 = 4 C1= Net Cash Inflow year 1 = 12
C2= Net Cash Inflow year 2 = 7 C2= Net Cash Inflow year 2 = 5
C3= Net Cash Inflow year 3 = 1 C3= Net Cash Inflow year 3 = 9
r = 10% = 10/100 = 0.10 r = 10% = 10/100 = 0.10
NPV for Project A at WACC 10 % = 4/ (1 +.10)1+ 7 / ( 1+0.10)2 + 1 / ( 1+ 0.10)3 - 11
= 4/ 1.10 + 7/1.21 + 1 / 1.331 - 11
= 3.6364 + 5.7851 + 0.7513 - 11
= 10.17 - 11.00
= - 0.83 million
NPV for Project B at WACC 10 % = 12/ (1 +.10)1+ 5 / ( 1+0.10)2 + 9 / ( 1+ 0.10)3 - 20
= 12/ 1.05 + 5/1.21 + 9 / 1.331 - 20
= 10.9090 + 4.1322 + 6.7618 - 20
= 21.80 - 20
= 1.80 million
Project A : Project B
C0 = Initial Investment = 11 C0 = Initial Investment = 20
C1= Net Cash Inflow year 1 = 4 C1= Net Cash Inflow year 1 = 12
C2= Net Cash Inflow year 2 = 7 C2= Net Cash Inflow year 2 = 5
C3= Net Cash Inflow year 3 = 1 C3= Net Cash Inflow year 3 = 9
r = 15% = 15/100 = 0.15 r = 15% = 15/100 = 0.15
NPV for Project A at WACC 15 % = 4/ (1 +.15)1+ 7 / ( 1+0.15)2 + 1 / ( 1+ 0.15)3 - 11
= 4/ 1.15 + 7/1.3225 + 1 / 1.5209 - 11
= 3.4782 + 5.2930 + 0.6575- 11
= 9.43 - 11.00
= - 1.57 million
NPV for Project B at WACC 15 % = 12/ (1 +.15)1+ 5 / ( 1+0.15)2 + 9 / ( 1+ 0.15)3 - 20
= 12/ 1.15 + 5/1.3225 + 9 / 1.5209 - 20
= 10.4348 + 3.7807 + 5.9175 - 20
= 20.13 - 20
= 0.13 million
At WACC at 5%,10% and 15% , The IRR is as follows for
Project A = 5.1243% - It can be checked from NPV calculations above at 5% WACC , NPV is almost 0
Project B = 15.43 % It can be checked from NPV calculations above at 15% WACC , NPV is almost 0
The IRR is not affected by WACC rate as IRR is the value where NPV = 0 , hence IRR will remain the same for all rates of WACC
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