## What are the projects’ Np Vs assuming the WACK is 5%?

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

1. What are the projects’ Np Vs assuming the WACK 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’ Np Vs assuming the WACK 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’ Np Vs assuming the WACK 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

2. What are the projects’ Ir Rs assuming the WACK is 5%? Round your answer to two decimal places.

Project A   %

Project B   %

What are the projects’ Ir Rs assuming the WACC is 10%? Round your answer to two decimal places.

Project A   %

Project B   %

What are the projects’ Ir Rs assuming the WACK is 15%? Round your answer to two decimal places.

Project A   %

Project B   %

3. If the WACK were 5% and A and B were mutually exclusive, which would you choose? (Hint: The crossover rate is 5.9%.)

Pick Project A or B or Neither

If the WACK were 10% and A and B were mutually exclusive, which would you choose? (Hint: The crossover rate is 5.9%.)

Pick Project A or B or Neither

If the WACK were 15% and A and B were mutually exclusive, which would you choose? (Hint: The crossover rate is 5.9%.)

Pick Project A or B or Neither

A company is analyzing two mutually exclusive projects, S and L, with the following cash flows:

 0 1 2 3 4
 Project S -\$1,000 \$884.15 \$260 \$5 \$10 Project L -\$1,000 \$10 \$240 \$400 \$769.20

The company’s WACK is 9.5%. What is the IRE of the better project? (Hint: The better project may or may not be the one with the higher IRE.) Round your answer to two decimal places.

%

Project K costs \$55,801.73, its expected cash inflows are \$12,000 per year for 10 years, and its WACK is 10%. What is the project’s IRE? Round your answer to two decimal places

Capital budgeting criteria: mutually exclusive projects

Project S costs \$19,000 and its expected cash flows would be \$6,500 per year for 5 years. Mutually exclusive Project L costs \$42,500 and its expected cash flows would be \$14,000 per year for 5 years. If both projects have a WACK of 13%, which project would you recommend?

 I. Both Projects S and L, since both projects have IRS’s > 0.
 II. Both Projects S and L, since both projects have NPR’s > 0.
 III. Project S, since the NP’S > NP.
 IV. Neither S or L, since each project’s NOV < 0.

Capital budgeting criteria: mutually exclusive projects

A firm with a WACK of 10% is considering the following mutually exclusive projects:

 0 1 2 3 4 5
 Project A -\$500 \$75 \$75 \$75 \$170 \$170 Project B -\$450 \$350 \$350 \$80 \$80 \$80

Which project would you recommend?