Question

There are 2 projects that the company is considering: Project A costs 10,000 to implement today,...

There are 2 projects that the company is considering:

Project A costs 10,000 to implement today, and it brings subsequent cash flows of 5,000 at the end of year 1; 4,000 at the end of year 2; 6,000 at the end of year 3

Project B’s initial cost is 12,000, and subsequent cash flows are 6,000 per year for 3 years.
WACC is 8% for both projects.
a. calculate NPV and IRR for each project and decide which one to recommend.
b. calculate MIRR for projects A and B. Which project would you recommend based on MIRR?
c. find the crossover rate. what does this rate represent? describe in one sentence.
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
There are two projects that the company is considering: Project A costs -10,000 to implement today,...
There are two projects that the company is considering: Project A costs -10,000 to implement today, and it brings subsequent cash flows of 5,000 at the end of year 1; 1,500 at the end of year 2; 2,100 at the end of year 3; and 3,400 at the end of year 4. Project B's initial cost is -10,000, and subsequent cash flows are 2,500 per year for five (5) years. WACC is 6% for both projects. a. Calculate NPV and...
MIRR and NPV Your company is considering two mutually exclusive projects, X and Y, whose costs...
MIRR and NPV Your company is considering two mutually exclusive projects, X and Y, whose costs and cash flows are shown below: Year X Y 0 -$5,000 -$5,000 1 1,000 4,500 2 1,500 1,500 3 2,000 1,000 4 4,000 500 The projects are equally risky, and their cost of capital is 15%. You must make a recommendation, and you must base it on the modified IRR (MIRR). Calculate the two projects' MIRRs. Do not round intermediate calculations. Round your answers...
6. Understanding the NPV profile If projects are mutually exclusive, only one project can be chosen....
6. Understanding the NPV profile If projects are mutually exclusive, only one project can be chosen. The internal rate of return (IRR) and the net present value (NPV) methods will not always choose the same project. If the crossover rate on the NPV profile is below the horizontal axis, the methods will agree. Projects Y and Z are mutually exclusive projects. Their cash flows and NPV profiles are shown as follows. Year Project Y Project Z 0 –$1,500 –$1,500 1...
CAPITAL BUDGETING CRITERIA A firm with a 14% WACC is evaluating two projects for this year's...
CAPITAL BUDGETING CRITERIA A firm with a 14% WACC is evaluating two projects for this year's capital budget. After-tax cash flows, including depreciation, are as follows: 0 1 2 3 4 5 Project M -$18,000 $6,000 $6,000 $6,000 $6,000 $6,000 Project N -$54,000 $16,800 $16,800 $16,800 $16,800 $16,800 Calculate NPV for each project. Round your answers to the nearest cent. Do not round your intermediate calculations. Project M    $ Project N    $ Calculate IRR for each project. Round your answers to two...
Grey company is analyzing a project that requires an initial investment of $600,000. The project's expected...
Grey company is analyzing a project that requires an initial investment of $600,000. The project's expected cash flows are: (Year 1) $350,000, (Year 2) -$125,000, (Year 3) $500,000 and (Year 4) $400,000. 1. Grey company's WACC is 10%, and the project has the same risk as the firm's average project. Calculate this project's modified internal rate of return (MIRR): _______%. 2. If Grey company's managers select projects based on the MIRR criterion, they should accept or reject this independent project....
Your company is considering two mutually exclusive projects, X and Y, whose costs and cash flows...
Your company is considering two mutually exclusive projects, X and Y, whose costs and cash flows are shown below: Year X Y 0 -$5,000 -$5,000 1 1,000 4,500 2 1,500 1,500 3 2,000 1,000 4 4,000 500 The projects are equally risky, and their cost of capital is 11%. You must make a recommendation, and you must base it on the modified IRR (MIRR). Calculate the two projects' MIRRs. Do not round intermediate calculations. Round your answers to two decimal...
ABC Corporation is considering a project that provides the following cash flows steam: Year 0 1...
ABC Corporation is considering a project that provides the following cash flows steam: Year 0 1 2 3 4 5 Cash flows -$1,000 $375 $425 $250 $110 $100 If WACC is 10%, what is NPV and should the company accept the project? Find IRR, MIRR, payback, and discounted payback period. Considering the following projects. Project Year 0 1 2 3 4 A Cash flows -$100 $35 $35 $35 $35 B Cash flows -$100 $60 $50 $40 $30 Project A has...
A tire manufacturing firm is considering Projects S and L, whose cash flows are shown below....
A tire manufacturing firm is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. What is the cost of capital at which the decision to take project L (or S) based on NPV will contradict the decision based on IRR method? Hint: Calculate the crossover rate and explain how the crossover rate would influence your decision to take project L or project S based on NPV vs. IRR?...
A firm with a 14% WACC is evaluating two projects for this year's capital budget. After-tax...
A firm with a 14% WACC is evaluating two projects for this year's capital budget. After-tax cash flows, including depreciation, are as follows: 0 1 2 3 4 5 Project M -$9,000 $3,000 $3,000 $3,000 $3,000 $3,000 Project N -$27,000 $8,400 $8,400 $8,400 $8,400 $8,400 Calculate NPV for each project. Do not round intermediate calculations. Round your answers to the nearest cent. Project M:    $   Project N:    $   Calculate IRR for each project. Do not round intermediate calculations. Round your answers to...
Quantum Water is considering Projects S and L, whose cash flows are shown below. These projects...
Quantum Water is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. The CEO believes the IRR is the best method, while you believe it should be the MIRR. If the decision is made by choosing the project with the higher IRR rather than the one with the higher MIRR, how much, if any, value will be forgone, i.e., what's the NPV of the chosen project versus the...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT