{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

# BaM-Ch12 - Chapter 12 Chapter 12 P23 Build a Model Gardial...

This preview shows page 1. Sign up to view the full content.

Chapter 12. Chapter 12 P23 Build a Model 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 @ a 12% cost of capital @ a 18% cost of capital WACC = 12% WACC = 18% NPV A = NPV A = NPV B = NPV B = b. Construct NPV profiles for Projects A and B. Project A Project B 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24% 26% 28% 30% c. What is each project's IRR? We find the internal rate of return with Excel's IRR function: Note in the graph above that the X-axis intercepts are equal to the two projects' IRRs. e. What is the crossover rate, and what is its significance? Cash flow Time differential 0 1 2 Crossover rate = 3 4 5 6 value, at a cost of capital of 13.13%, is: 7 @ a 12% cost of capital @ a 18% cost of capital f. What is the regular payback period for these two projects? Project A Time period: 0 1 2 3 4 5 6 7 Cash flow: (375) (300) (200) (100) 600 \$600 \$926 (\$200) Cumulative cash flow: % of year required for payback:
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Ask a homework question - tutors are online