Question

eBook Problem Walk-Through

Your division is considering two projects with the following cash flows (in millions):

0

1

2

3

Project A	-$20	$5	$9	$12
Project B	-$13	$8	$7	$3

1. What are the projects' NPVs assuming the WACC is 5%? Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to two decimal places.

   Project A:    $   million

   Project B:    $   million

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

   Project A:  $   million

   Project B:  $   million

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

   Project A:  $   million

   Project B:  $   million

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

   Project A:    %

   Project B:    %

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

   Project A:    %

   Project B:    %

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

   Project A:    %

   Project B:    %

3. 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-Project AProject BNeither A nor BItem 13

   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-Project AProject BNeither A nor BItem 14

   If the WACC was 15% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 3.86%.)

   -Select-Project AProject BNeither A nor B

Answer 1

1.
=NPV(5%,{-20;5;9;12})*(1+5%)=3.29122125040492

2.
=NPV(5%,{-13;8;7;3})*(1+5%)=3.5597667638484

3.
=NPV(10%,{-20;5;9;12})*(1+10%)=0.999248685199094

4.
=NPV(10%,{-13;8;7;3})*(1+10%)=2.31179564237415

5.
=NPV(15%,{-20;5;9;12})*(1+15%)=-0.956686118188538

6.
=NPV(15%,{-13;8;7;3})*(1+15%)=1.22207610750391

7.
=IRR({-20;5;9;12})=12.4578925611943%

8.
=IRR({-13;8;7;3})=21.493016789999%

9.
=IRR({-20;5;9;12})=12.4578925611943%

10.
=IRR({-13;8;7;3})=21.493016789999%

11.
=IRR({-20;5;9;12})=12.4578925611943%

12.
=IRR({-13;8;7;3})=21.493016789999%

13.
Project B

14.
Project B

15.
Project B