Chap_11_HW

# Chap_11_HW - \$225 \$225 B-\$600 \$300 \$300 \$50 \$50 \$49 Which...

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BUS 320 Chapter 11 Assignment 1) Project K costs \$52,125, its expected net cash inflows are \$12,000 per year for 8 years, and its WACC is 12%. a) What is the project’s NPV? b) What is the project’s IRR? c) What is the project’s payback? 2) Your division is considering two projects with the following net cash flows (in millions): 0 1 2 3__ Project A -\$25 \$5 \$10 \$17 Project B -\$20 \$10 \$9 \$6 a) What are the projects’ NPVs, assuming the WACC is 5%? 10%? 15%? b) What are the projects’ IRRs at each of these WACCs? c) If the WACC were 5% and A and B were mutually exclusive, which would you choose? What if the WACC were 10%? 15% (Hint: The crossover rate is 7.81%). 3) A firm with a WACC of 10% is considering the following mutually exclusive projects: 0 1 2 3 4 5__ A -\$400 \$55 \$55 \$55

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Unformatted text preview: \$225 \$225 B-\$600 \$300 \$300 \$50 \$50 \$49 Which project, A or B, would you recommend and why? Use the following information to answer questions 4 thru 6 below: Year: 0 1 2 3 4 5 Project A Cash Flows: -7,000 1,500 2,300 2,400 1,000 1,700 Project B Cash Flows: -7,000 1,000 2,900 2,500 1,000 1,800 The cost of capital for both projects is 6%. 4) What is the IRR for Project A? 5) What is the payback for Project B? 6) a) If Projects A and B are mutually exclusive, which project(s) should be accepted? b) If Projects A and B are independent, which project(s) should be accepted? 7) Calculate the Modified IRR for the following cash flows if the cost of capital is 10%: Year: 1 2 3 Cash Flows: -1,200 500 700 300...
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## Chap_11_HW - \$225 \$225 B-\$600 \$300 \$300 \$50 \$50 \$49 Which...

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