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)

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