Problem 11-6 NPV Your division is considering two projects with the following ca
ID: 2614556 • Letter: P
Question
Problem 11-6
NPV
Your division is considering two projects with the following cash flows (in millions):
What are the projects' NPVs assuming the WACC is 5%? Round your answer to two decimal places. (fill in the blank space)
Project A $____ million
Project B $____ million
What are the projects' NPVs assuming the WACC is 10%? Round your answer to two decimal places.
Project A $____ million
Project B $____ million
What are the projects' NPVs assuming the WACC is 15%? Round your answer to two decimal places.
Project A $____ million
Project B $____ million
What are the projects' IRRs assuming the WACC is 5%? Round your answer to two decimal places.
Project A ____%
Project B ____%
What are the projects' IRRs assuming the WACC is 10%? Round your answer to two decimal places.
Project A ____%
Project B ____%
What are the projects' IRRs assuming the WACC is 15%? Round your answer to two decimal places.
Project A ____%
Project B ____%
If the WACC were 5% and A and B were mutually exclusive, which would you choose? (Hint: The crossover rate is 20.19%.) (select multiple choice)
a.Project A
b.Project B
b.Neither A, nor B
If the WACC were 10% and A and B were mutually exclusive, which would you choose? (Hint: The crossover rate is 20.19%.) (select multiple choice)
a.Project A
b.Project B
b.Neither A, nor B
If the WACC were 15% and A and B were mutually exclusive, which would you choose? (Hint: The crossover rate is 20.19%.) (select multiple choice)
a.Project A
b.Project B
b.Neither A, nor B
0 1 2 3Explanation / Answer
1) At WACC 5% Project A $ 0.47 million project B $ 3.23 million Working: Project A Project B Year Discount factor Cash flows Present Value Cash flows Present Value a b=1.05^-a c d=b*c e f=b*e 0 1.0000 $ -17 $ -17.00 $ -26 $ -26.00 1 0.9524 $ 8 $ 7.62 $ 13 $ 12.38 2 0.9070 $ 8 $ 7.26 $ 10 $ 9.07 3 0.8638 $ 3 $ 2.59 $ 9 $ 7.77 $ 0.47 $ 3.23 2) At WACC 10% Project A $ -0.86 million project B $ 0.84 million Working: Project A Project B Year Discount factor Cash flows Present Value Cash flows Present Value a b=1.10^-a c d=b*c e f=b*e 0 1.0000 $ -17 $ -17.00 $ -26 $ -26.00 1 0.9091 $ 8 $ 7.27 $ 13 $ 11.82 2 0.8264 $ 8 $ 6.61 $ 10 $ 8.26 3 0.7513 $ 3 $ 2.25 $ 9 $ 6.76 $ -0.86 $ 0.84 3) At WACC 15% Project A $ -2.02 million project B $ -1.22 million Working: Project A Project B Year Discount factor Cash flows Present Value Cash flows Present Value a b=1.15^-a c d=b*c e f=b*e 0 1.0000 $ -17 $ -17.00 $ -26 $ -26.00 1 0.8696 $ 8 $ 6.96 $ 13 $ 11.30 2 0.7561 $ 8 $ 6.05 $ 10 $ 7.56 3 0.6575 $ 3 $ 1.97 $ 9 $ 5.92 $ -2.02 $ -1.22 4) At 5% WACC IRR Project A 6.77% project B 12.26% Working: IRR is the rate at which NPV is zero. Project A: NPV At 5% $ 0.47 At 10% $ -0.86 IRR = 5%+(10%-5%)*(0.47/(0.47+0.86)) = 6.77% Project B: NPV At 5% $ 3.23 At 15% $ -1.22 IRR = 5%+(15%-5%)*(3.23/(3.23+1.22)) = 12.26%