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Excel Activity: Capital Budgeting Tools

Start with the partial model in the file Ch$12$ P$25$ Build a Model.xlsx$.$ Gardial Fisheries is considering two mutually exclusive investments. The projects' expected net cash flows are as follows:

Expected Net Cash Flows

Year Project A Project B

$0-$$$415-$$$615$

$1-375200$

$2-250200$

$3-125200$

$4750200$

$5750200$

$6992200$

$7-250200$

The data has been collected in the Microsoft Excel file below. Download the spreadsheet and perform the required analysis to answer the questions below. Do not round intermediate calculations.

Download spreadsheet Ch$12$ P$25$ Build a Model$-9$c$1132.$xlsx

If each project's cost of capital is $9\%,$ which project should be selected? Round your answers to the nearest cent.

NPV $($Project A$)$: $ fill in the blank $2$

$407\mathrm{.}53$

NPV $($Project B$)$: $ fill in the blank $3$

$391\mathrm{.}59$

Project A

should be selected.

If the cost of capital is $17\%,$ what project is the proper choice? Round your answers to the nearest cent.

NPV $($Project A$)$: $ fill in the blank $5$

$49\mathrm{.}55$

NPV $($Project B$)$: $ fill in the blank $6$

$169\mathrm{.}48$

Project B

should be selected.

Construct NPV profiles for Projects A and B$.$ Choose the correct graph.

A$.$

B$.$

C$.$

D$.$

The correct graph is

graph A

$.$

What is each project's IRR? $($Hint: Using the Excel IRR function, set the guess parameter to be $10\%.)$ Round your answers to two decimal places.

IRR $($Project A$)$: fill in the blank $9$

$18\mathrm{.}01$

$\%$

IRR $($Project B$)$: fill in the blank $10$

$26\mathrm{.}11$

$\%$

What is the crossover rate, and what is its significance? $($Hint: Using the Excel IRR function, set the guess parameter to be $10\%.)$ Round your answer for the crossover rate to two decimal places and for the NPV to the nearest cent.

The crossover rate is fill in the blank $11$

$9\mathrm{.}74$

$\%.$ The crossover rate represents the cost of capital at which the two projects have the NPV of $ fill in the blank $12$

$367\mathrm{.}18$

$.$

What is each project's MIRR at a cost of capital of $9\%?$ At r $=17\%?$ Round your answers to two decimal places.

Project A Project B

MIRR at r $=9\%$ fill in the blank $13$

$13\mathrm{.}64$

$\%$ fill in the blank $14$

$16\mathrm{.}95$

$\%$

MIRR at r $=17\%$ fill in the blank $15$

$17\mathrm{.}75$

$\%$ fill in the blank $16$

$21\mathrm{.}14$

$\%$

What is the regular payback period for these two projects? Round your answers to two decimal places.

Regular payback period $($Project A$)$: fill in the blank $17$

$4\mathrm{.}55$

years

Regular payback period $($Project B$)$: fill in the blank $18$

$3\mathrm{.}07$

years

At a cost of capital of $9\%,$ what is the discounted payback period for these two projects? Round your answers to two decimal places.

Discounted payback period $($Project A$)$: fill in the blank $19$

years

Discounted payback period $($Project B$)$: fill in the blank $20$

years

What is the profitability index for each project if the cost of capital is $9\%?$ Round your answers to three decimal places.

Profitability index $($Project A$)$: fill in the blank $21$

Profitability index $($Project B$)$: fill in the blank $22$