A company has a 12 percent WACC and is considering two mutuallyexclusive investm

Question

A company has a 12 percent WACC and is considering two mutuallyexclusive investments (that cannot be repeated) with the followingnet cash flow flows:

              0      1     2          3           4             5             6      7

                        |_________|______|______|_______|________|________|_______|

Project A     -$300       -$387    -$193    -$100     $600      $600     $850      -$180

Project B     -$405       $134      $134     $134     $134        $134     $134         $0  

a.     What is each project’s NPV?

b.     What is each project’s IRR?

c.      What is each project’s MIRR?(Hint: Consider Period 7 as the end of Project B’s life)

d.     From your answers to part a, b, and c,which project would be selected? If the WACC were 18 percent, whichproject would be selected?

e.     Construct NPV profiles for projects Aand B?

f.      What is each project’s MIRRat a WACC of 18 percent?

Explanation / Answer

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