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): Project A Project B $20 $13 59 $7 $12 $3 $8 a. 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 $10,550,000 should be entered as 10.55. Nive value should be indicated by a minus sign. Project A Project B$ million 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 $ Project B million 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 $ Project B $ million million b. 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 c. If the WACC was 5% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 3.86%.) Select If the wACC was 10% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 3.86%.) -Select If the WACC was 15% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 3.86%.) Timeout

Explanation / Answer

Part A - 5%

Project A

CF0 = -20

CF1 = 5

CF2 = 9

CF3 = 12

Discount Rate = 5%

NPV = -20 + 5/ (1.05) + 9/ (1.05)2 + 12/ (1.05)3

NPV = 3.29

Project B

CF0 = -13

CF1 = 8

CF2 = 7

CF3 = 3

Discount Rate = 5%

NPV = -13 + 8/ (1.05) + 7/ (1.05)2 + 3/ (1.05)3

NPV = 3.56

Part B - 10%

Project A

CF0 = -20

CF1 = 5

CF2 = 9

CF3 = 12

Discount Rate = 10%

NPV = -20 + 5/ (1.1) + 9/ (1.1)2 + 12/ (1.1)3

NPV = 1.00

Project B

CF0 = -13

CF1 = 8

CF2 = 7

CF3 = 3

Discount Rate = 10%

NPV = -13 + 8/ (1.1) + 7/ (1.1)2 + 3/ (1.1)3

NPV = 2.31

Part C - 15%

Project A

CF0 = -20

CF1 = 5

CF2 = 9

CF3 = 12

Discount Rate = 15%

NPV = -20 + 5/ (1.15) + 9/ (1.15)2 + 12/ (1.15)3

NPV = -0.96

Project B

CF0 = -13

CF1 = 8

CF2 = 7

CF3 = 3

Discount Rate = 15%

NPV = -13 + 8/ (1.15) + 7/ (1.15)2 + 3/ (1.15)3

NPV = 1.22

Question B

IRR of both projects will not depend on WACC. It will be single across all WACC's

Project A

CF0 = -20

CF1 = 5

CF2 = 9

CF3 = 12

20 = 5/ (1 + r) + 9/ (1 + r)2 + 12/ (1 + r)3

r = 12.46%

Project B

CF0 = -13

CF1 = 8

CF2 = 7

CF3 = 3

13 = 8/ (1 + r) + 7/ (1 + r)2 + 3/ (1 + r)3

r = 21.49%

Question C:

Across all WACC's NPV of project B is more than Project A, we will choose project B over project across WACC 5%, 10% and 15%

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