Your division is considering two projects with the following cash flows (in mill

Question

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. Do not round your intermediate calculations. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative value should be indicated by a minus sign.
Project A    $ ____ million
Project B    $ ____ million

What are the projects' NPVs assuming the WACC is 10%? Round your answer to two decimal places. Do not round your intermediate calculations. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative value should be indicated by a minus sign.
Project A    $ ____million
Project B    $ ____million

What are the projects' NPVs assuming the WACC is 15%? Round your answer to two decimal places. Do not round your intermediate calculations. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative value should be indicated by a minus sign.
Project A    $ ____million
Project B    $ ____million

What are the projects' IRRs assuming the WACC is 5%? Round your answer to two decimal places. Do not round your intermediate calculations.
Project A ____%
Project B ____%

What are the projects' IRRs assuming the WACC is 10%? Round your answer to two decimal places. Do not round your intermediate calculations.
Project A ____ %
Project B ____%

What are the projects' IRRs assuming the WACC is 15%? Round your answer to two decimal places. Do not round your intermediate calculations.
Project A ____%
Project B ____%

Explanation / Answer

Projects' NPV assuming WACC is 5% :-

NPV = PV of net cash inflows - Initial outflow

NPV of the project A = 4/1.05 + 14/(1.05)2 + 20/(1.05)3 - 35

= 3.81 + 12.70 + 17.28 - 35

= 33.79 - 35

= $ - 1.21 million

NPV of the project B = 8/1.05 + 5/(1.05)2 + 4/(1.05)3 - 15

= 7.62 + 4.54 + 3.46 - 15

= 15.62 - 15

= $ 0.62 millon

Project's NPV assuming WACC is 10% :-

NPV of the project A = 4/1.10 + 14/(1.10)2 + 20/(1.10)3 - 35

= 3.64 + 11.57 + 15.03 - 35

= $ - 4.76 million

NPV of the project B = 8/1.1 + 5/(1.1)2 + 4 /(1.1)3 - 15

= 7.27 + 4.13 + 3.01 - 15

= $ - 0.59 million

Projects' NPV assuming WACC is 15% :-

NPV of the project A = 4/1.15 + 14 / (1.15)2 + 20/(1.15)3 - 35

= 3.48 + 10.59 + 13.15 - 35

= $ - 7.78 million

NPV of the project B= 8/1.15 + 5/(1.15)2 + 4/(1.15)3 - 15

= 6.96 + 3.78 + 2.63 - 15

= $ - 1.63 million

IRR of the project is

Initial Outflow = PV of Net Cash inflows

For project A

35 = 4/(1+r) +14 / (1+r)2 + 20 / (1+r)3

Assuming IRR = 3.5%

35 = 4 / (1.035) + 14 / (1.035)2 + 20 / (1.035)3

35 = 34.98

Therefore IRR of project A is approx 3.5%

For project B

15 = 8 / (1+r)+ 5/(1+r)2 + 4 (1+r)3

Assuming IRR = 7.5%

15 = 8/(1.075) + 5/(1.075)2 + 4/(1.075)3

15 = 14.99

Therefore IRR of project B is approx 7.5%

IRR of the projects given WACC is 5%/10%/15%

Project A = 3.5%

Project B = 7.5%

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