NPV Your division is considering two projects with the following cash flows (in
ID: 2719515 • Letter: N
Question
NPV Your division is considering two projects with the following cash flows (in millions): 0 1 2 3 Project A -$19 $8 $15 $17 Project B -$17 $11 $8 $6 a.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 b.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 % c.If the WACC were 5% and A and B were mutually exclusive, which would you choose? (Hint: The crossover rate is 89.04%.) -Select-Project AProject BNeither A, nor B If the WACC were 10% and A and B were mutually exclusive, which would you choose? (Hint: The crossover rate is 89.04%.) -Select-Project AProject BNeither A, nor B If the WACC were 15% and A and B were mutually exclusive, which would you choose? (Hint: The crossover rate is 89.04%.) -Select-Project AProject BNeither A, nor B
Explanation / Answer
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IRR: NPV @ 45%
IRR = Lower rate + [Lower rate NPV / (Lower rate NPV - Higher rate NPV)]* Difference in rates
Project A = 10 + [13.43 / (13.43 + 0.76)] * 35
= 43.13%
Project B = 10 + [4.12 / (4.12+ 3.63)]* 35
= 28.61%
PVF @5% Project A Present Value Project B Present Value Cash flows: Period 0 1 -19 -19 -17 -17 Period 1 0.952 8 7.62 11 10.47 Period 2 0.907 15 13.61 8 7.26 Period 3 0.864 17 14.69 6 5.18 NPV 16.92 5.91Related Questions
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