Question

CAPITAL BUDGETING CRITERIA Your division is considering two projects. It’s WACC is 10%, and the projects’ after-tax cash flows ( in millions of dollars) would be as follows; ______ 0__1__2___3__4___Pro A -$30 $5 $10 $15 $20Pro B -$30 $20 $10 $8 $6a) Calculate the projects’ NPVs, IRRs, MIRRs, regular paybacks and discounted paybacks.b) If the two projects are independent, which project(s) should be chosen?c) if the two projects are mutually exclusive and the WACC is 10%, which project(s) should be chosen?d) Plot NVP profiles for the two projects. Identify the projects IRRs on the graph.e) If the WACC were 5% would this change your recommendation if the projects were mutually exclusive? If WACC were 15%, would this change your recommendation? Explain your answers.f) The crossover rate is 13.5252%. Explain what this rate is and how it affects the choice between mutually exclusive projects?g) Is it possible for conflicts to exist between the NPV and IRR when independent projects are being evaluated? Explain your answer.h) Now look at the regular and discounted paybacks. Which projects look better when judged by the paybacks?

Answer 1

Answer

The answer and procedures of the exercise are attached in the following archives.

Explanation  

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