14. Problem 11.06 NPV Your division is considering two projects with the followi

Question

14.  Problem 11.06

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. Do not round your intermediate calculations. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative value should be indicated by a minus sign.
Project A    $   million
Project B    $   million

What are the projects' NPVs assuming the WACC is 10%? Round your answer to two decimal places. Do not round your intermediate calculations. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative value should be indicated by a minus sign.
Project A    $   million
Project B    $   million

What are the projects' NPVs assuming the WACC is 15%? Round your answer to two decimal places. Do not round your intermediate calculations. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative value should be indicated by a minus sign.
Project A    $   million
Project B    $   million

What are the projects' IRRs assuming the WACC is 5%? Round your answer to two decimal places. Do not round your intermediate calculations.
Project A   %
Project B   %

What are the projects' IRRs assuming the WACC is 10%? Round your answer to two decimal places. Do not round your intermediate calculations.
Project A   %
Project B   %

What are the projects' IRRs assuming the WACC is 15%? Round your answer to two decimal places. Do not round your intermediate calculations.
Project A   %
Project B   %

If the WACC was 5% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 90.37%.)
-Select-Project AProject BNeither A, nor BItem 13

If the WACC was 10% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 90.37%.)
-Select-Project AProject BNeither A, nor BItem 14

If the WACC was 15% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 90.37%.)
-Select-Project AProject BNeither A, nor B

NPV

Your division is considering two projects with the following cash flows (in millions):

0 1 2 3 Project A -$27 $13 $17 $8 Project B -$25 $14 $11 $2

What are the projects' NPVs assuming the WACC is 5%? Round your answer to two decimal places. Do not round your intermediate calculations. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative value should be indicated by a minus sign.
Project A    $   million
Project B    $   million

What are the projects' NPVs assuming the WACC is 10%? Round your answer to two decimal places. Do not round your intermediate calculations. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative value should be indicated by a minus sign.
Project A    $   million
Project B    $   million

What are the projects' NPVs assuming the WACC is 15%? Round your answer to two decimal places. Do not round your intermediate calculations. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative value should be indicated by a minus sign.
Project A    $   million
Project B    $   million

What are the projects' IRRs assuming the WACC is 5%? Round your answer to two decimal places. Do not round your intermediate calculations.
Project A   %
Project B   %

What are the projects' IRRs assuming the WACC is 10%? Round your answer to two decimal places. Do not round your intermediate calculations.
Project A   %
Project B   %

What are the projects' IRRs assuming the WACC is 15%? Round your answer to two decimal places. Do not round your intermediate calculations.
Project A   %
Project B   %

If the WACC was 5% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 90.37%.)
-Select-Project AProject BNeither A, nor BItem 13

If the WACC was 10% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 90.37%.)
-Select-Project AProject BNeither A, nor BItem 14

If the WACC was 15% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 90.37%.)
-Select-Project AProject BNeither A, nor B

Explanation / Answer

NPV and IRR can be calculated using the same function on a calculator

IRR remains constant irrespective of the WACC.

We select Project A in all scenarios till the crossover rate of 90.37% as it has higher NPV than Project B.

A B 0 -27 -25 1 13 14 2 17 11 3 8 2 NPV (5%) $7.71 $0.04 NPV (10%) $4.88 -$1.68 NPV (15%) $2.42 -$3.19 IRR 20.67% 5.10%

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