CA finance week 6 - 10% 10% PV of cash flows $68.11 $28.95...

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The Pinkerton Publishing Company is considering two mutually exclusive expansion plans. Plan A calls for the expenditure of $50 million on a large-scale, integrated plant that will provide an expected cash flow stream of $8 million per year for 20 years. Plan B call for the expenditure of $15 million to build a somewhat less efficient, more labor- intensive plant that has an expected cash flow stream of $3.4 million per year for 20 years. The firm's cost of capital is 10%. a.) Calculate each project's NPV and IRR. The cash flows for the projects are Plan A Plan B Initial Investment -50 -15 million Annual cash flow 8 3.4 million Period 20 20 years Discounting Rate
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Unformatted text preview: 10% 10% PV of cash flows $68.11 $28.95 Using the PV function NPV $18.11 $13.95 NPV = PV of cash flows - initial investment IRR 15.03% 22.3% Using RATE function c.) Graph the NPV profiles for Plan A, Plan B NPV Rate Plan A Plan B We calculate the NPVs at different discounting rates and make the graph 0% $59.00 $53.00 4% $58.72 $31.21 8% $28.55 $18.38 12% $9.76 $10.40 16% ($2.57) $5.16 20% ($11.04) $1.56 24% ($17.12) ($1.03) 28% ($21.63) ($2.94) 32% ($25.10) ($4.42) 0% 4% 8% 12% 16% 20% 24% 28% 32% ($30.00) ($20.00) ($10.00) $0.00 $10.00 $20.00 $30.00 $40.00 $50.00 $60.00 $70.00 NPV Profile Plan A Plan B Rate NPV...
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