Question

NPV

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

0 1 2 3

Project A -$21 $14 $9 $3

Project B -$35 $20 $8 $15

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 %

If the WACC was 5% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 8.76%.)

If the WACC was 10% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 8.76%.)

If the WACC was 15% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 8.76%.)

Answer 1

Project A
				$ in millions
Year	Outflows	Inflows	Discounting factor @5%	Discounted cash inflows
(1)	(2)	(3)	(4)	"(3)*(4)
0	21
1		14	0.952380952	13.33
2		9	0.907029478	8.16
3		3	0.863837599	2.59
	21			24.09
	Total Discounted Cash inflows			24.09
	Initial cash outflow			21
	NPV			3.09
Project B
				$ in millions
Year	Outflows	Inflows	Discounting factor @5%	Discounted cash inflows
(1)	(2)	(3)	(4)	"(3)*(4)
0	35
1		20	0.952380952	19.05
2		8	0.907029478	7.26
3		15	0.863837599	12.96
	35			39.26
	Total Discounted Cash inflows			39.26
	Initial cash outflow			35
	NPV			4.26
Project A
				$ in millions
Year	Outflows	Inflows	Discounting factor @10%	Discounted cash inflows
(1)	(2)	(3)	(4)	"(3)*(4)
0	21
1		14	0.909090909	12.73
2		9	0.826446281	7.44
3		3	0.751314801	2.25
	21			22.42
	Total Discounted Cash inflows			22.42
	Initial cash outflow			21
	NPV			1.42
Project B
				$ in millions
Year	Outflows	Inflows	Discounting factor @10%	Discounted cash inflows
(1)	(2)	(3)	(4)	"(3)*(4)
0	35
1		20	0.909090909	18.18
2		8	0.826446281	6.61
3		15	0.751314801	11.27
	35			36.06
	Total Discounted Cash inflows			36.06
	Initial cash outflow			35
	NPV			1.06
Project A
				$ in millions
Year	Outflows	Inflows	Discounting factor @15%	Discounted cash inflows
(1)	(2)	(3)	(4)	"(3)*(4)
0	21
1		14	0.869565217	12.17
2		9	0.756143667	6.81
3		3	0.657516232	1.97
	21			20.95
	Total Discounted Cash inflows			20.95
	Initial cash outflow			21
	NPV			-0.05
Project B
				$ in millions
Year	Outflows	Inflows	Discounting factor @15%	Discounted cash inflows
(1)	(2)	(3)	(4)	"(3)*(4)
0	35
1		20	0.869565217	17.39
2		8	0.756143667	6.05
3		15	0.657516232	9.86
	35			33.30
	Total Discounted Cash inflows			33.30
	Initial cash outflow			35
	NPV			-1.70
	IRR Calculation
	Project A
		For 10% WACC, NPV =	1.42
		For 15% WACC, NPV =	-0.05
		On proportionate basis
		IRR=	10+(1.42/1.47*5)
		IRR=	14.83%
	Project B
		For 10% WACC, NPV =	1.06
		For 15% WACC, NPV =	-1.7
		On proportionate basis
		IRR=	10+(1.06/2.76*5)
		IRR=	11.92%
	If the projects are mutually exclusive, then Project A should be selected because of high IRR