Question: You are considering two mutually exclusive investments. The projects expected net cash flows are as follows: Expected Net Cash Flows Year Project X Project Z
You are considering two mutually exclusive investments. The projects expected net cash flows are as follows:
Expected Net Cash Flows
| Year | Project X | Project Z |
| 0 | $ (45,000.00) | $ (50,000.00) |
| 1 | $ (20,000.00) | $ 15,000.00 |
| 2 | $ 11,000.00 | $ 15,000.00 |
| 3 | $ 20,000.00 | $ 15,000.00 |
| 4 | $ 30,000.00 | $ 15,000.00 |
| 5 | $ 45,000.00 | $ 15,000.00 |
| a) | Construct NPV profiles for Projects X and Z (complete the following table AND line graph) | ||||
| Discount Rate | NPV X Profile | NPV Z Profile | |||
| 0% | |||||
| 5% | |||||
| 6% | |||||
| 9% | |||||
| 12% | |||||
| 15% | |||||
| 18% | |||||
| 21% |
| b) | Calculate each project's IRR | |
| Project X IRR | ||
| Project Z IRR |
| c) | Which project would you choose for the following rates? | |
| 9% | ||
| 12% | ||
| 15% |
| d) | At what rate do the NPV profiles of the two projects cross? | ||
| Year | Difference in cash flows: | ||
| 0 | Crossover Rate: | ||
| 1 | |||
| 2 | |||
| 3 | |||
| 4 | |||
| 5 |
Step by Step Solution
There are 3 Steps involved in it
1 Expert Approved Answer
Step: 1 Unlock
Question Has Been Solved by an Expert!
Get step-by-step solutions from verified subject matter experts
Step: 2 Unlock
Step: 3 Unlock
Study Help