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.
