6. Problem 11.06 Problem 11-6 NPV Your division is considering two projects with

Question

6. Problem 11.06 Problem 11-6 NPV Your division is considering two projects with the following cash flows (in millions): Project A Project B $27 $25 517 $11 $8 $2 $13 $14 What are the projects' NPVs assuming the WACC is 5%? Round your answer to two decimal places. Project A $ Project B $ million ' NPVs assuming the WACC is 10%? Round your answer to two decimal places. What are the pro Project A $ Project B $ million ' NPVs assuming the WACC is 15%? Round your answer to two decimal places. What are the pro Project A $ Project B $ million What are the projects' IRRs assuming the WACC is 5%? Round your answer to two decimal places. Project A Project E What are the projects' IRRs assuming the WACC is 10%? Round your answer to two decimal places. Project A Project B IRRs assuming the WACC is 15%? Round your answer to two decimal places. What are the Project A Project B c. If the WACC were 5% and A and B were mutually exclusive, which would you choose? (Hint: The crossover rate is 90.37%.) Select If the WACC were 10% and A and B were mutually exclusive, which would you choose? (Hint: The crossover rate is 90.37%.) If the WACC were 15% and A and B were mutually exclusive, which would you choose? (Hint: The crossover rate is 90.37%.) Select

Explanation / Answer

Porject A:

NPV at 5% = 7.71

similarly NPV at 10% = 4.88

NPV at 15% = 2.42

IRR = 20.67% (for all the discount rates since IRR is independent of WACC)

Project B:

NPV at 5% = 0.04

NPV at 10% = -1.68

NPV at 15% = -3.19

IRR = 5.10%

choose A in all the cases

5.00% Cash flows Year Discounted CF                  (27.00) 0 -27.00                     13.00 1 12.38                     17.00 2 15.42                       8.00 3 6.91

Related Questions

Navigate

• Browse (All)
• Browse 6
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.