# 11-23 - Chapter 11 Solution for Chapter 11 P23 Build a...

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Chapter 11. Solution for Chapter 11 P23 Build a Model Expected net cash flows Time Project A Project B 0 (\$375) (\$575) 1 (\$300) \$190 2 (\$200) \$190 3 (\$100) \$190 4 \$600 \$190 5 \$600 \$190 6 \$926 \$190 7 (\$200) \$0 @ a 12% cost of capital @ a 18% cost of capital WACC = 12% WACC = 18% NPV A = \$226.96 NPV A = \$18.24 NPV B = \$206.17 NPV B = \$89.54 b. Construct NPV profiles for Projects A and B. Gardial Fisheries is considering two mutually exclusive investments. The projects' expected net cash flows are as follows: a. If you were told that each project's cost of capital was 12 percent, which project should be selected? If the cost of capital was 18 percent, what would be the proper choice? Use Excel's NPV function as explaine Tool Kit.xls". Note that the range do include the costs, which are added se At a cost of capital of 12%, Project A should be selected. However, if the cost of capital rises to 18%, then the choice is reversed, and Project B should be accepted.

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c. What is each project's IRR? We find the internal rate of return with Excel's
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11-23 - Chapter 11 Solution for Chapter 11 P23 Build a...

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