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