Answer i, j, k.

our division is considering two projects. Its WACC is 10%, and the projects after-tax cash flows (in millions of dollars) would be as follows: Expected Cash Flows Time Project A Project B $30) S5 $10 SIS $20 (S30 S20 S10 S8 S6 0 a. Calculate the projects' NPVs, IRRs, MIRRs, regular paybacks, and discounted paybacks. - Use Excel's NPV function as explained in 1lmodel.xlsx. Note that the range does not include the initial costs, which are added separately. 10% $7.74 $6.55 :we find the internal rate of return with Excel's IRR function: IRRA 5 IRRB 19.19% 22.52% 7 we find the modified internal rate of return with Excel's MIRR function using the 10% WACC: 8 MIRRA 16.50% 15.57% Project A Payback Period Time period: Cash flow: Cumulative cash flow: 0 30 30 10 15 15 20 20 25 PaybackA: 3.00 Project B Payback Period Time period: 0 Cash flow: 30 20 10 10 Cumulative cash flow: 30 Paybackp: Project A Discounted Payback Period: 14 2.00 Time period: 0 Cash flow: 30 10 8.26 (17.19) 15 11.27 (5.92) 20 13.66 7.74 Disc. cash flow: 1.00 4.55 (25.45) 9 Disc. cum. cash flow: (30.00 1Discounted PaybackA 3.43 3 Project B Discounted Payback Period Time period: 0 Cash flow 30 20 18.18 (ii,82) 10 8.26 (3.55) 56 Disc. cash flow: Disc. cum, cash flow: 1.00 (30.00) 6.01 4.10 6.55 571 58 59 Discounted Payback:2.59 60 61 b. If the two projects are independent, which project(s) should be chosen? 122 i. I the payback was the only method a firm used to accept or reject projects, what payback should it choose 123 as the cutoff point, that is, reject projects if their paybacks are not below the chosen cutoff? Is your selected 124 cutoff based on some economic criteria, or is it more or less arbitrary? Are the cutoff criteria equally 125 arbitrary when firms use the NPV and/or the IRR as the criteria? Explain. 126 127 128 129 130 131 j. Define the MIRR. What's the difference between the IRR and the MIRR, and which generally gives a better 132 idea of the rate of return on the imestment in a projecr? Explain. 134 135 136 137 138 139 k. Why do most academics and financial executives regard the NPV as being the single best criterion and 140 better than the IRR? Why do companies still calculate IRRs? 141 142 143 144 145 146 147 148 our division is considering two projects. Its WACC is 10%, and the projects after-tax cash flows (in millions of dollars) would be as follows: Expected Cash Flows Time Project A Project B $30) S5 $10 SIS $20 (S30 S20 S10 S8 S6 0 a. Calculate the projects' NPVs, IRRs, MIRRs, regular paybacks, and discounted paybacks. - Use Excel's NPV function as explained in 1lmodel.xlsx. Note that the range does not include the initial costs, which are added separately. 10% $7.74 $6.55 :we find the internal rate of return with Excel's IRR function: IRRA 5 IRRB 19.19% 22.52% 7 we find the modified internal rate of return with Excel's MIRR function using the 10% WACC: 8 MIRRA 16.50% 15.57% Project A Payback Period Time period: Cash flow: Cumulative cash flow: 0 30 30 10 15 15 20 20 25 PaybackA: 3.00 Project B Payback Period Time period: 0 Cash flow: 30 20 10 10 Cumulative cash flow: 30 Paybackp: Project A Discounted Payback Period: 14 2.00 Time period: 0 Cash flow: 30 10 8.26 (17.19) 15 11.27 (5.92) 20 13.66 7.74 Disc. cash flow: 1.00 4.55 (25.45) 9 Disc. cum. cash flow: (30.00 1Discounted PaybackA 3.43 3 Project B Discounted Payback Period Time period: 0 Cash flow 30 20 18.18 (ii,82) 10 8.26 (3.55) 56 Disc. cash flow: Disc. cum, cash flow: 1.00 (30.00) 6.01 4.10 6.55 571 58 59 Discounted Payback:2.59 60 61 b. If the two projects are independent, which project(s) should be chosen? 122 i. I the payback was the only method a firm used to accept or reject projects, what payback should it choose 123 as the cutoff point, that is, reject projects if their paybacks are not below the chosen cutoff? Is your selected 124 cutoff based on some economic criteria, or is it more or less arbitrary? Are the cutoff criteria equally 125 arbitrary when firms use the NPV and/or the IRR as the criteria? Explain. 126 127 128 129 130 131 j. Define the MIRR. What's the difference between the IRR and the MIRR, and which generally gives a better 132 idea of the rate of return on the imestment in a projecr? Explain. 134 135 136 137 138 139 k. Why do most academics and financial executives regard the NPV as being the single best criterion and 140 better than the IRR? Why do companies still calculate IRRs? 141 142 143 144 145 146 147 148