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11-16 NPV PROFILES: SCALE DIFFERENCES A company is considering two mutually exclusive expansion plans. Plan A requires a $40 million expenditure on a large-scale integrated plant that would provide expected cash flows of $6.4 million per year for 20 years. Plan B requires a $12 million expenditure to build a somewhat less efficient, more labor-intensive plant with expected cash flows of $2.72 million per year for 20 years. The firm's WACC is 10%. a. Calculate each project's NPV and IRR. b. Graph the NPV profiles for Plan A and Plan B and approximate the crossover rate. c. Calculate the crossover rate where the two projects' NPVs are equal. d. Why is NPV better than IRR for making capital budgeting decisions that add to share- holder value? 11-20 11-21 NPV A project has annual cash flows of $5,000 for the next 10 years and then $9,000 each year for the following 10 years. The IRR of this 20-year project is 8.52%. If the firm's WACC is 8%, what is the project's NPV? MIRR Project A costs $1,000, and its cash flows are the same in Years 1 through 10. Its IRR is 16%, and its WACC is 8%. What is the project's MIRR? MIRR A project has the following cash flows: 1 2 3 5 H + + + H -$500 $202 - $X $196 $350 $451 11-22 0 4 This project requires two outflows at Years 0 and 2, but the remaining cash flows are posi- tive. Its WACC is 10%, and its MIRR is 14.14%. What is the Year 2 cash outflow