NPV Your division is considering two projects with the following cash flows (in
ID: 2752248 • Letter: N
Question
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. 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
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 %
If the WACC were 5% and A and B were mutually exclusive, which would you choose? (Hint: The crossover rate is 48.57%.)
-Select-Project AProject BNeither A, nor BItem 13
If the WACC were 10% and A and B were mutually exclusive, which would you choose? (Hint: The crossover rate is 48.57%.)
-Select-Project AProject BNeither A, nor BItem 14
If the WACC were 15% and A and B were mutually exclusive, which would you choose? (Hint: The crossover rate is 48.57%.)
-Select-Project AProject BNeither A, nor B
Explanation / Answer
IRR would be same irrespective of WACC because it is base on cashflows not WACC
The formula for IRR is:
0 = P0 + P1/(1+IRR) + P2/(1+IRR)2 + P3/(1+IRR)3 + . . . +Pn/(1+IRR)n
where P0, P1, . . . Pn equals the cash flows in periods 1, 2, . . . n, respectively; and
IRR equals the project's internal rate of return.
A general rule of thumb is that the IRR value cannot be derived analytically. Instead, IRR must be found by using mathematical trial-and-error to derive the appropriate rate. However, most business calculators and spreadsheet programs will automatically perform this function.
PV = cashflow/(1+i)^n
where i = WACC and n is the number of period
Year Project A PV @ 5% Project B PV @ 5% 0 -16 (16.00) -26 (26.00) 1 7 6.67 14 13.33 2 9 8.16 20 18.14 4 10 8.23 11 9.05 NPV 7.06 14.52 Year Project A PV @ 10% Project B PV @ 10% 0 -16 (16.00) -26 (26.00) 1 7 6.36 14 12.73 2 9 7.44 20 16.53 4 10 6.83 11 7.51 NPV 4.63 10.77 Year Project A PV @ 15% Project B PV @ 15% 0 -16 (16.00) -26 (26.00) 1 7 6.09 14 12.17 2 9 6.81 20 15.12 4 10 5.72 11 6.29 NPV 2.61 7.59 Year Project A Project B 0 -16 -26 1 7 14 2 9 20 4 10 11 IRR 26.89% 34.46%Related Questions
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