Question

Your division is considering two projects with the following cash flows (in millions):

0 1 2 3
Project A -$29 $15 $13 $3
Project B -$16 $8 $3 $6
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 %

If the WACC were 5% and A and B were mutually exclusive, which would you choose? (Hint: The crossover rate is 5.9%.)
-Select-Project AProject BNeither A, nor BItem 13

If the WACC were 10% and A and B were mutually exclusive, which would you choose? (Hint: The crossover rate is 5.9%.)
-Select-Project AProject BNeither A, nor BItem 14

If the WACC were 15% and A and B were mutually exclusive, which would you choose? (Hint: The crossover rate is 5.9%.)
-Select-Project AProject BNeither A, nor BItem 15

Answer 1

Answer:

WACC is 5%, then NPV of Project A is ($0.32) and NPV of Project B is ($0.45)

WACC is 10%, then NPV of Project A is ($2.15) and NPV of Project B is ($1.58)

WACC is 15%, then NPV of Project A is ($3.61) and NPV of Project B is ($2.46)

Regardless WACC, IRR of the Project A is 4.2% and IRR of Project B 3.3%

The IRR of both projects is lower than minimum WACC 5%, then we shouldn't accept any project

Explanation:

We use excel to do these calculations, please see attachment for my work.

Net present value = NPV (WACC, Cash out year 0, Cash in year 1, Cash in year 2, Cash in year 3)

Internal Rate of return (IRR) is the minimum rate to get NPV is 0; thus it's regardless WACC

= IRR(Cash out year 0, Cash in year 1, Cash in year 2, Cash in year 3)

When NPV is zero, it means no value is created for the shareholders.

IRR must be higher than the cost of capital of a project to create any value for the shareholders.