Question

Year 0 1 2 3 4 5 6 Project A CF -350 -250 175 225 375...

Year

0

1

2

3

4

5

6

Project A CF

-350

-250

175

225

375

450

125

Project B CF

-1000

125

250

300

550

500

200

WACC = 12%

a. Calculate the NPV of Project A.?

b. Calculate the IRR of Project A.?

c. Calculate the MIRR of Project A.?

d. Calculate the Payback Period for Project B.?

e. Calculate the Discounted Payback Period for Project B.?

f. Calculate the EAA for Project B.?

g. Calculate the crossover rate for Projects A and B.?

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Homework Answers

Answer #1
Year A B DCF A DCF B A - B
0 -350 -1000 -350 -1000 650
1 -250 125 -223 112 -375
2 175 250 140 199 -75
3 225 300 160 214 -75
4 375 550 238 350 -175
5 450 500 255 284 -50
6 125 200 63 101 -75
NPV $283.44 $259.01
IRR 25.73% 19.47%
MIRR 19.76% 16.38%
Payback 3.53 3.59
Dis. PBP 4.14 4.44
EAA $68.94 $63.00
Crossover 10.16%

NPV and IRR can be calculated using the same function in excel or calculator

Payback Period is the no. of years it takes to recover the initial investment.

Discounted Payback Period (Dis. PBP) is similar to the payback period but with discounted cash flows (DCF) of the project. DCF = CF / (1 + r)^n

EAA can be calculated using PMT function in excel or calculator.

Crossover rate is the IRR of difference in cash flows of A and B.

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