Below : SIX PROJECTS , USING PAYBACK OF 5 YEARS OR LESS While the management rev

Question

Below : SIX PROJECTS , USING PAYBACK OF 5 YEARS OR LESS

While the management reviews both the IRR and NPV for all projects, the decision is generally based on the NPV provided the IRR meets the minimum criteria.

A & B are mutually exclusive and one of them must be chosen before any of the others are considered for selection.

The others can be accepted regardless of which others are chosen, depending on remaining funding. Additionally, to the change in the cost of capital related to issuing stock, the company would reduce the payback period to 4.5 years.   

This is information I have been provided and calculated.

Would appreciate help on which projects to choose & why. Also (HOW-TO / WHICH #'s to use) calculating the selected projects NPV. (My own calculations weren't working.)

What would be the impact of changing the WACC assumptions?

RETAINED EARNINGS Source Historical Weights Cost of Capital Weighted Cost DEBT 40% 0.20% 0.08% PREFERRED 20% 13.09% 2.62% COMMON 40% 13.16% 5.26% 26.45% 7.96% ISSUING SHARES Source Historical Weights Cost of Capital Weighted Cost DEBT 40% 0.20% 0.08% PREFERRED 20% 13.09% 2.62% COMMON 40% 16.27% 6.51% 29.56% 9.21%

Explanation / Answer

Here I am taking highers WACC of 9.21% to choose between the projects.

NPV of Proj B is more so choose that project.

If WACC is changed NPV wil change and if WACC > IRR, viable project will become unviable.

-525000 -750000 73253.37 137350.0595 83844.62 125766.9257 99805.88 115160.6315 101933.8 105448.7973 96555.99 96555.99055 55994.99 88413.14032 43177.07 80957.00057 34593.84 74129.65898 27151.23 67878.08715 22789.7 114100.5 141660.2915 NPV

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