# Week 3 10-23.xls - Gardial Fisheries is considering two...

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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 @ 12% cost of capital @ 18% cost of capital WACC = 12% WACC = 18% \$226.96 \$18.24 \$206.17 \$89.54 b. Construct NPV profiles for Projects A and B. Project A Project B \$226.96 \$206.17 0% \$951.00 \$565.00 2% \$790.31 \$489.27 4% \$648.61 \$421.01 6% \$523.41 \$359.29 8% \$412.58 \$303.35 10% \$314.28 \$252.50 Gardial Fisheries is considering two mutually exclusive investments. The projects' expected net cash flo as follows: a. If each project's cost of capital is 12%, which project should be selected? If the cost of capital is 18% project is the proper choice? Use Excel's NPV function as expl in this chapter's Tool Kit. Note t range does not include the costs, are added separately. NPV A = NPV A = NPV B = NPV B = At a cost of capital of 12%, Project A should be selected. However, if the cost of capital rises to 18%, then the is reversed, and Project B should be accepted. Before we can graph the NPV profiles for these projects, we must create a data table of project NPVs rel to differing costs of capital. Project A
12% \$226.96 \$206.17 14% \$149.27 \$163.85 16% \$80.03 \$125.10 18% \$18.24 \$89.54 20% (\$36.98) \$56.85 22% (\$86.39) \$26.71 24% (\$130.65) (\$1.11) 26% (\$170.34) (\$26.85) 28% (\$205.97) (\$50.72)