eBook Problem Walk$-$Through

Your division is considering two projects with the following cash flows $($in millions$)$:

$0123$

Project A $-$$$21$ $$14$ $$9$ $$3$

Project B $-$$$35$ $$20$ $$8$ $$15$

What are the projects' NPVs assuming the WACC is $5\%?$ Enter your answer in millions. For example, an answer of $$10,550,000$ should be entered as $10\mathrm{.}55.$ Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to two decimal places.

Project A: $

$3\mathrm{.}08$

million

Project B: $

$4\mathrm{.}26$

million

What are the projects' NPVs assuming the WACC is $10\%?$ Enter your answer in millions. For example, an answer of $$10,550,000$ should be entered as $10\mathrm{.}55.$ Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to two decimal places.

Project A: $

$1\mathrm{.}41$

million

Project B: $

$1\mathrm{.}06$

million

What are the projects' NPVs assuming the WACC is $15\%?$ Enter your answer in millions. For example, an answer of $$10,550,000$ should be entered as $10\mathrm{.}55.$ Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to two decimal places.

Project A: $

$-0\mathrm{.}05$

million

Project B: $

$-1\mathrm{.}70$

million

What are the projects' IRRs assuming the WACC is $5\%?$ Do not round intermediate calculations. Round your answer to two decimal places.

Project A:

$14\mathrm{.}82$

$\%$

Project B:

$\%$

What are the projects' IRRs assuming the WACC is $10\%?$ Do not round intermediate calculations. Round your answer to two decimal places.

Project A:

$\%$

Project B:

$\%$

What are the projects' IRRs assuming the WACC is $15\%?$ Do not round intermediate calculations. Round your answer to two decimal places.

Project A:

$\%$

Project B:

$\%$

If the WACC was $5\%$ and A and B were mutually exclusive, which project would you choose? $($Hint: The crossover rate is $8\mathrm{.}76\%.)$

Project B

If the WACC was $10\%$ and A and B were mutually exclusive, which project would you choose? $($Hint: The crossover rate is $8\mathrm{.}76\%.)$

Project B

If the WACC was $15\%$ and A and B were mutually exclusive, which project would you choose? $($Hint: The crossover rate is $8\mathrm{.}76\%.)$

Neither A nor B