Problem 11-6 NPV Your division is considering two projects with the following ca

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. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55.
Project A    $   million
Project B    $   million

What are the projects' NPVs assuming the WACC is 10%? Round your answer to two decimal places. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55.
Project A    $   million
Project B    $   million

What are the projects' NPVs assuming the WACC is 15%? Round your answer to two decimal places. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55.
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   %

Explanation / Answer

Hi,

Please find the answer as follows;

Part 1:

5%

NPV (Project A) = -11 + 4/(1+.05)^ + 7/(1+.05)^2 + 1/(1+.05)^3 = -7.56 million

NPV (Project B) = -20 + 12/(1+.05)^ + 5/(1+.05)^2 + 9/(1+.05)^3 = -3.70 million

10%

NPV (Project A) = -11 + 4/(1+.10)^ + 7/(1+.10)^2 + 1/(1+.10)^3 = -8.55 million

NPV (Project B) = -20 + 12/(1+.10)^ + 5/(1+.10)^2 + 9/(1+.10)^3 = -7.08 million

15%

NPV (Project A) = -11 + 4/(1+.15)^ + 7/(1+.15)^2 + 1/(1+.15)^3 = -9.21 million

NPV (Project B) = -20 + 12/(1+.15)^ + 5/(1+.15)^2 + 9/(1+.15)^3 = -9.57 million

Part 2:

5%

IRR (Project A) = 5.12%

IRR (Project B) = 15.43%

10%

IRR (Project A) = 5.12%

IRR (Project B) = 15.43%

15%

IRR (Project A) = 5.12%

IRR (Project B) = 15.43%

Notes:

IRR would continue to remain same irrespective of WACC.

Thanks.

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects