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Problem 11-6
NPV
Your division is considering two projects with the following cash flows (in millions):
0 1 2 3

Project A -$27 $13 $17 $8
Project B -$25 $14 $11 $2

a. 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

b. 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 %

c. If the WACC were 5% and A and B were mutually exclusive, which would you choose? (Hint: The crossover rate is 90.37%.)

If the WACC were 10% and A and B were mutually exclusive, which would you choose? (Hint: The crossover rate is 90.37%.)

If the WACC were 15% and A and B were mutually exclusive, which would you choose? (Hint: The crossover rate is 90.37%.)

Problem 11-10

Capital budgeting criteria: mutually exclusive projects

A firm with a WACC of 10% is considering the following mutually exclusive projects:

0 1 2 3 4 5

Project A -$400 $45 $45 $45 $190 $190

Project B -$500 $350 $350 $60 $60 $60

Which project would you recommend?

Select the correct answer.

I. Neither A or B, since each project's NPV < 0.

II. Both Projects A and B, since both projects have NPV's > 0.

III. Both Projects A and B, since both projects have IRR's > 0.

IV. Project B, since the NPVB > NPVA.

V. Project A, since the NPVA > NPVB.

NPV

Project K costs $50,000, its expected cash inflows are $9,000 per year for 9 years, and its WACC is 9%. What is the project's NPV? Round your answer to the nearest cent.

Problem 11-11

Capital budgeting criteria: mutually exclusive projects
Project S costs $10,000 and its expected cash flows would be $7,000 per year for 5 years. Mutually exclusive Project L costs $27,000 and its expected cash flows would be $10,200 per year for 5 years. If both projects have a WACC of 12%, which project would you recommend?

Select the correct answer.

I. Project S, since the NPVS > NPVL.

II. Neither S or L, since each project's NPV < 0.

III. Both Projects S and L, since both projects have IRR's > 0.

IV. Both Projects S and L, since both projects have NPV's > 0.

V. Project L, since the NPVL > NPVS.


Problem 11-2
IRR

Project K costs $69,862.90, its expected cash inflows are $14,000 per year for 10 years, and its WACC is 11%. What is the project's IRR? Round your answer to two decimal places.
%

Problem 11-12

IRR and NPV
A company is analyzing two mutually exclusive projects, S and L, with the following cash flows:
0 1 2 3 4

Project S -$1,000 $861.63 $250 $15 $15

Project L -$1,000 $0 $260 $400 $813.35

The company's WACC is 8.5%. What is the IRR of the better project? (Hint: The better project may or may not be the one with the higher IRR.) Round your answer to two decimal places.

Financial Management, Finance

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