NPV Your division is considering two projects with the following cash flows (in
ID: 2799108 • Letter: N
Question
NPV
Your division is considering two projects with the following cash flows (in millions):
0 1 2 3
Project A -$31 $7 $12 $22
Project B -$19 $13 $6 $5
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 10.72%.)
If the WACC was 10% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 10.72%.)
If the WACC was 15% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 10.72%.)
Explanation / Answer
1.
2.
3.
4,5 & 6, - IRR- Internal Rate of retuen is the rate at whic NPV is equal to zero. It means the present value of cash inflows = Present value of cash outflows.
7. If the WACC was 5% and A and B were mutually exclusive, Project A would be chosen as its NPV is higher than the Project B and its IRR is also 12.74% which higher than the crossover rate of 10.72%.
8. If the WACC was 10% and A and B were mutually exclusive, Project A would be chosen as its NPV is higher than the Project B and its IRR is also 12.74% higher than the crossover rate of 10.72%.
9. If the WACC was 15% and A and B were mutually exclusive, Project B would be chosen as its NPV is higher than the Project A and its IRR is also 15.49% higher than the crossover rate of 10.72% and IRR of Project A whic has IRR of 12.74%.
WACC 5% Cashflows Years Project A Project B PV Factor PV of Project A PV of Project B 0 -31 -19 1.000 -31.00 -19.00 1 7 13 0.952 6.67 12.38 2 12 6 0.907 10.88 5.44 3 22 5 0.864 19.00 4.32 Net present Value 5.56 3.14Related Questions
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