Problem 11-17 Capital budgeting criteria A company has a 13% WACC and is conside
ID: 2614566 • Letter: P
Question
Problem 11-17
Capital budgeting criteria
A company has a 13% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following cash flows:
What is each project's NPV? Round your answer to the nearest cent. (fill the blank with answer)
Project A $_____
Project B $_____
What is each project's IRR? Round your answer to two decimal places.(fill the blank with answer)
Project A ____%
Project B ____%
What is each project's MIRR? (Hint: Consider Period 7 as the end of Project B's life.) Round your answer to two decimal places.(fill the blank with answer)
Project A ____%
Project B ____ %
From your answers to parts a-c, which project would be selected? (select multiple choice answer)
a. project a
b. project b
If the WACC was 18%, which project would be selected?(select multiple choice answer)
a. project a
b. project b
Construct NPV profiles for Plans A and B. Round your answers to the nearest cent.
Calculate the crossover rate where the two projects' NPVs are equal. Round your answer to two decimal places.
________ %
What is each project's MIRR at a WACC of 18%? Round your answer to two decimal places.
Project A ________ %
Project B ________ %
Explanation / Answer
Aps per chegg policy only 4 subparts canbe answered however I have solved 5 subparts
Year 0 1 2 3 4 5 6 7 Project A ($300) ($387) ($193) ($100) $600 $600 $850 ($180) Project B ($400) $135 $135 $135 $135 $135 $135 $0 WACC = 13% NPV of Project A Using Excel Function $162.48 NPV of Project B Using Excel Function $139.67 Project A IRR using Excel function 18% Project B IRR using Excel function 25% MIRR of Project A = (Fv of cash inflow/PV of Cash outflow)^(1/n)-1 Year 4 5 6 Total FV FV of Cash inflows $865.74 $766.14 $960.50 $2,592.38 Year 0 1 2 3 7 Total PV PV of Cash outflows -400 -342.478 -151.1473 -69.30502 -76.5109 1039.441 MIRR of Project A = 13.95% MIRR of Project B Year 1 2 3 4 5 6 7 Total FV FV of Cash outflows $281.06 $248.73 $220.11 $194.79 $172.38 $152.55 $0.00 $1,269.63 PV of cash inflows 400 MIRR of Project B 17.94% For NPV project A should be selected For IRR project B for MIRR project B With Discount rate 18% NPV of Project A Using Excel Function $2.66 NPV of Project B Using Excel Function $72.18 So project B would be selected IRR remains same so project B would be selected MIRR of Project A = (Fv of cash inflow/PV of Cash outflow)^(1/n)-1 Year 4 5 6 Total FV FV of Cash inflows $985.82 $835.44 $1,003.00 $2,824.26 Year 0 1 2 3 7 Total PV PV of Cash outflows -400 -387 -193 -60.86309 -56.5065 1097.37 MIRR of Project A = 14.46% MIRR of Project B Year 1 2 3 4 5 6 7 Total FV FV of Cash outflows $364.44 $308.85 $261.73 $221.81 $187.97 $159.30 $0.00 $1,504.11 PV of cash inflows 400 MIRR of Project B 20.83% MIRR project B should be selected