Excel Online Structured Activity: NPV profiles

A company is considering two mutually exclusive expansion plans. Plan A requires a $$41$ million

expenditure on a large$-$scale integrated plant that would provide expected cash flows of $$6\mathrm{.}55$ million per

year for $20$ years. Plan B requires a $$13$ million expenditure to build a somewhat less efficient, more

labor$-$intensive plant with an expected cash flow of $$2\mathrm{.}91$ million per year for $20$ years. The firm's WACC is

$10\%.$ The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and

perform the required analysis to answer the questions below.

Open spreadsheet

a$.$ Calculate each project's NPV$.$ Round your answers to two decimal places. Do not round your

intermediate calculations. Enter your answers in millions. For example, an answer of $$10,550,000$

should be entered as $10\mathrm{.}55.$

Plan A: $ million

Plan B: $ million

Calculate each project's IRR. Round your answer to two decimal places.

Plan A: $,\%$

Plan B: $,\%$

b$.$ By graphing the NPV profiles for Plan A and Plan B$,$ approximate the crossover rate to the nearest

percent.

$\%$

c$.$ Calculate the crossover rate where the two projects' NPVs are equal. Round your answer to two

decimal places.

$\%$

d$.$ Why is NPV better than IRR for making capital budgeting decisions that add to shareholder value?

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