ch10_p23_build_a_model.xlsx - Solution Chapter Problem 12 23 Gardial Fisheries is considering two mutually exclusive investments The projects expected

# ch10_p23_build_a_model.xlsx - Solution Chapter Problem 12...

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Solution 3/18/2015 Chapter: 12 Problem: 23 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 12% \$226.96 \$206.17 14% \$149.27 \$163.85 16% \$80.03 \$125.10 Gardial Fisheries is considering two mutually exclusive investments. The projects' expected net cash flows are as follows: a. If each project's cost of capital is 12%, which project should be selected? If the cost of capital is 18%, what project is the proper choice? Use Excel's NPV function as explained in this chapter's Tool Kit. Note that the range does not include the costs, which 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 choice 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 relative to differing costs of capital.

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