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4 years ago

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

Business

2 answers:

eimsori [14]4 years ago

8 0

Answer:

Explanation:

1.If WACC = 5%

Project A

Year Cash Flow PV factor @5% (a)* (b)

(b)

0 -$29 1 - $29

1 $15 0.952 $14.28

2 $13 0.907 $11.791

3 $3 0.864 $2.592

__________

NPV = - $ 0.337 millions

Project B

Year Cash Flow PV factor @5% (a)* (b)

(b)

0 -$16 1 - $16

1 $8 0.952 $7.616

2 $3 0.907 $2.721

3 $6 0.864 $5.184

__________

NPV = - $ 0.479 millions

2. If WACC = 10 %

Project A

Year Cash Flow PV factor @10% (a)* (b)

(b)

0 -$29 1 - $29

1 $15 0.909 $13.635

2 $13 0.826 $10.738

3 $3 0.751 $2.253

__________

NPV = - $ 2.374 millions

Project B

Year Cash Flow PV factor @10% (a)* (b)

(b)

0 -$16 1 - $16

1 $8 0.909 $7.272

2 $3 0.826 $2.478

3 $6 0.751 $4.506

__________

NPV = - $ 1.744 millions

3. If WACC = 15%

Project A

Year Cash Flow PV factor @ 15% (a)* (b)

(b)

0 -$29 1 - $29

1 $15 0.870 $13.05

2 $13 0.756 $9.828

3 $3 0.658 $1.974

__________

NPV = -$ 4.148 millions

Project B

Year Cash Flow PV factor @15% (a)* (b)

(b)

0 -$16 1 - $16

1 $8 0.870 $6.96

2 $3 0.756 $2.268

3 $6 0.658 $3.948

__________

NPV = -$ 2.824 millions

4. If WACC = 5% , IRR = ?

Project A

Year Cash Flow PV factor @5% PV factor @ 4% (a)* (b) (a) *(c)

(b) (c)

0 -$29 1 1 - $29 -$29

1 $15 0.952 0.962 $14.28 $14.43

2 $13 0.907 0.925 $11.791 $12.025

3 $3 0.864 0.889 $2.592 $2.667

__________ ____________

NPV = - $ 0.337 m NPV = -$0.122 m

Since NPV is fairly close to zero at 4% value of r, therefore IRR ≈ 4%

Project B

Year Cash Flow PV factor @5% PV factor @ 3% (a)* (b) (a) * (c)

(b) (c)

0 -$16 1 1 - $16 -$16

1 $8 0.952 0.971 $7.616 $7.768

2 $3 0.907 0.943 $2.721 $2.829

3 $6 0.864 0.915 $5.184 $5.49

__________ ____________

NPV = -$ 0.479 m NPV= - $ .087

Since NPV is fairly close to zero at 3% value of r, therefore IRR ≈ 3%

5. If WACC = 10% , IRR = ?

Project A

Year Cash Flow PV factor @10% PV factor @ 8% (a)* (b) (a) *(c)

(b) (c)

0 -$29 1 1 - $29 -$29

1 $15 0.909 0.926 $13.635 $13.89

2 $13 0.826 0.857 $10.738 $11.141

3 $3 0.751 0.792 $2.253 $2.376

__________ ____________

NPV = - $ 2.374 m NPV = -$1.593 m

Since NPV is fairly close to zero at 8% value of r, therefore IRR ≈ 8%

Project B

Year Cash Flow PV factor @10% PV factor @ 8% (a)* (b) (a) * (c)

(b) (c)

0 -$16 1 1 - $16 -$16

1 $8 0.909 0.926 $ 7.272 $7.408

2 $3 0.826 0.857 $ 2.478 $2.571

3 $6 0.751 0.792 $ 4.506 $4.752

__________ ____________

NPV = - $ 1.744 m NPV= - $1.269

Since NPV is fairly close to zero at 8% value of r, therefore IRR ≈ 8%

6. If WACC = 15% , IRR =?

Project A

Year Cash Flow PV factor @ 15% (a)* (b)

(b)

0 -$29 1 - $29

1 $15 0.870 $13.05

2 $13 0.756 $9.828

3 $3 0.658 $1.974

__________

NPV = -$ 4.148 millions

NPV @ 8% = -$ 1.593

Since NPV is fairly close to zero at 8% value of r, therefore IRR ≈ 8%

Project B

Year Cash Flow PV factor @15% (a)* (b)

(b)

0 -$16 1 - $16

1 $8 0.870 $6.96

2 $3 0.756 $2.268

3 $6 0.658 $3.948

__________

NPV = -$ 2.824 millions

NPV @ 8% = -$1.269

Since NPV is fairly close to zero at 8% value of r, therefore IRR ≈ 8%

7.If WACC = 5%

Project A

Year Cash Flow PV factor @5% (a)* (b)

(b)

0 -$29 1 - $29

1 $15 0.952 $14.28

2 $13 0.907 $11.791

3 $3 0.864 $2.592

__________

NPV = - $ 0.337 millions

Project B

Year Cash Flow PV factor @5% (a)* (b)

(b)

0 -$16 1 - $16

1 $8 0.952 $7.616

2 $3 0.907 $2.721

3 $6 0.864 $5.184

__________

NPV = - $ 0.479 millions

NPV of project B > project A than choose Project B

2. If WACC = 10 %

Project A

Year Cash Flow PV factor @10% (a)* (b)

(b)

0 -$29 1 - $29

1 $15 0.909 $13.635

2 $13 0.826 $10.738

3 $3 0.751 $2.253

__________

NPV = - $ 2.374 millions

Project B

Year Cash Flow PV factor @10% (a)* (b)

(b)

0 -$16 1 - $16

1 $8 0.909 $7.272

2 $3 0.826 $2.478

3 $6 0.751 $4.506

__________

NPV = - $ 1.744 millions

NPV of project A > project B than choose Project A

3. If WACC = 15%

Project A

Year Cash Flow PV factor @ 15% (a)* (b)

(b)

0 -$29 1 - $29

1 $15 0.870 $13.05

2 $13 0.756 $9.828

3 $3 0.658 $1.974

__________

NPV = -$ 4.148 millions

Project BYear Cash Flow PV factor @15% (a)* (b)

(b)

0 -$16 1 - $16

1 $8 0.870 $6.96

2 $3 0.756 $2.268

3 $6 0.658 $3.948

__________

NPV = -$ 2.824 millions

NPV of project A > project B than choose Project A

Law Incorporation [45]4 years ago

4 0

Answer:

Below is attached the file containing answer of the above mention question

Explanation:

Download docx

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