Capital budgeting criteria A company has a 11% WACC and is considering two mutua

Question

Capital budgeting criteria

A company has a 11% 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.
Project A $   
Project B $  

What is each project's IRR? Round your answer to two decimal places.
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.
Project A  %
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  %

0 1 2 3 4 5 6 7

Explanation / Answer

Calculation of NPV:

NPV = PV of Inflow - Outflow

NPV of Project A = 697.31 - 300 = $397.3

NPV of Project B = 554.21 - 400 = $154.2

Calculation of IRR:

IRR of Project A = 18.10%

IRR of Project B = 23.54%

Year DF(11%) Cash Flow A PV Cash Flow B PV 1 0.9009 -387 -348.65 131 118.02 2 0.8116 -193 -156.64 131 106.32 3 0.7312 -100 -73.12 131 95.79 4 0.6587 600 395.22 131 86.29 5 0.5936 600 356.16 131 77.76 6 0.5346 850 454.41 131 70.03 7 0.4817 -180 -86.71 0 0 Total 697.31 554.21

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