Chapter 11 - EOC Comprehensive Spreadsheet Solutions - 1 2...

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11problem4/8/2015 14:3911/3/2011Chapter 11. Solution to End-of-Chapter Comprehensive/Spreadsheet ProblemProblem 11-23Your division is considering two projects. Its WACC is 10%, and the projects' after-tax cash flows (in millionsof dollars) would be as follows:Expected Cash FlowsTimeProject AProject B0($30)($30)1$5 $20 2$10 $10 3$15 $8 4$20 $6 a. Calculate the projects' NPVs, IRRs, MIRRs, regular paybacks, and discounted paybacks.
We find the internal rate of return with Excel's IRR function:19.19%22.52%We find the modified internal rate of return with Excel's MIRR function using the 10% WACC:16.50%15.57%Project ATime period:0 1 2 3 4 Cash flow:(30)5 10 15 20 Cumulative cash flow:(30)(25)(15)0 20 Logical test:0 0 0 1 0 0.00 0.00 0.00 3.00 0.00 3.00 3.00 Alternative calculation using nested IF statements.Project BTime period:0 1 2 3 4 Cash flow:(30)20 10 8 6 Cumulative cash flow:(30)(10)0 8 14 Logical test:0 0 1 0 0 0.00 0.00 2.00 0.00 0.00 2.00 2.00 Alternative calculation using nested IF statements.Project ATime period:0 1 2 3 4 Cash flow:(30)5 10 15 20 Disc. cash flow:(30.00)4.55 8.26 11.27 13.66 Disc. cum. cash flow:(30.00)(25.45)(17.19)(5.92)7.74 3.43 Project BTime period:0 1 2 3 4 Cash flow:(30)20 10 8 6 Disc. cash flow:(30.00)18.18 8.26 6.01 4.10 Disc. cum. cash flow:(30.00)(11.82)(3.55)2.46 6.55 2.59 b. If the two projects are independent, which project(s) should be chosen?If the two projects are independent, both projects will be accepted because their NPVs are greater than zero.c.

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