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1/30/2013 Chapter 10. Chapter 10 P23 Build a Model Gardial Fisheries is considering two mutually exclusive investments. The projects' expected net

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1/30/2013 Chapter 10.  Chapter 10 P23 Build a Model Expected Net Cash Flows Time Project AProject 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% b.   Construct NPV profiles for Projects A and B. Project AProject B $0.00  $0.00  0% $0.00  $0.00  2% $0.00  $0.00  4% $0.00  $0.00  6% $0.00  $0.00  8% $0.00  $0.00  10% $0.00  $0.00  12% $0.00  $0.00  14% $0.00  $0.00  16% $0.00  $0.00  18% $0.00  $0.00  20% $0.00  $0.00  22% $0.00  $0.00  24% $0.00  $0.00  26% $0.00  $0.00  28% $0.00  $0.00  30% $0.00  $0.00  c.   What is each project's IRR? We find the internal rate of return with Excel's  IRR function: d.   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 13.14% is: 7  @ 12% cost of capital  @ 18% cost of capital f.   What is the regular payback period for these two projects? Project A Time period 5 6 7 Cash flow (375) (300) (200) (100) 600  $600  $926  ($200) Cumulative cash flow Payback Project B Time period 5 6 7 Cash flow (575) 190  190  190  190  $190  $190  $0  Cumulative cash flow Payback g.    At a cost of capital of 12%, what is the discounted payback period for these two projects? WACC   = 12% Project A Time period 5 6 7 Cash flow (375) (300) (200) (100) 600  $600  $926  ($200) Disc. cash flow Disc. cum. cash flow Discounted Payback Project B Time period 5 6 7 Cash flow (575) 190  190  190  190  $190  $190  $0  Disc. cash flow Disc. cum. cash flow Discounted Payback h.   What is the profitability index for each project if the cost of capital is 12%? PV of future cash flows for A: PI of A: PV of future cash flows for B: PI of B: Gardial Fisheries is considering two mutually exclusive  investments.  The projects'  expected net cash flows are as follows: cost of capital is 18%, what  explained in this chapter's Tool Kit.   Note that the range does not  include the costs, which are added  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. IRR  A  = the two projects' IRRs. IRR  B  = have the same net present value.  In this scenario, that  common net present Period 7 as the end of  MIRR  A  = MIRR  A  = MIRR  B  = MIRR  B  =
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1/30/2013
Chapter 10. Chapter 10 P23 Build a Model
Gardial Fisheries is considering two mutually exclusive investments. The projects' expected net cash flows are as follows:
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