Problem 11-6 NPV Your division is considering two projects with the following ca
ID: 2719267 • 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. 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
Answer for subpoint a:
NPV of the project @ WACC of 5% is as below:
Answer for subpoint b:
NPV of the projects where WACC is 10%.
Answer for subpoint c:
NPV of the projects where WACC is 15%:
Answer for subpoint d:
Using IRR function of excel = IRR(enter the range of values for which irr is to be determined)
IRR of project A=4.25% and IRR of Project B is 3.30%.
IRR is the rate of return at which the NPV of the project is equal to zero. Hence, it does not differ with the WACC, instead it will differ if only there is a change in the values of cash flows. For constant cash flows, IRR remains same irrespective of WACC.
Hence answer for subpoint e, and f are also same as subpoint d. i.e.,
IRR of project A=4.25% and IRR of Project B is 3.30%
Year Project A (X) Project B (Y) Present value factor @5% (Z) Present value of Project A( in Millions) X*Z Present value of Project B( in Millions) Y*Z 0 (A) -$29.00 -$16.00 1 -$29.00 -$16.00 1 $15.00 $8.00 0.952380952 $14.29 $7.62 2 $13.00 $3.00 0.907029478 $11.79 $2.72 3 $3.00 $6.00 0.863837599 $2.59 $5.18 Sum of present value of cash invlows (B) $28.67 $15.52 NPV =B-A -$0.33 -$0.48