Consider the following two mutually exclusive projects: Cash Flow Cash Flow Year (X) (Y) 519,500 $19,500 8,725 8,850 8,675 1 9,850 7,675 8,575 2 3 Calculate the IRR for each project. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Project X % Project Y % What is the crossover rate for these two projects? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Crossover rate % What is the NPV of Projects X and Y at discount rates of O percent, 15 percent, and 25 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Project X Project Y 0% 15% 25%

Consider the following two mutually exclusive projects: Cash Flow Cash Flow Year (X) (Y) 519,500 $19,500 8,725 8,850 8,675 1 9,850 7,675 8,575 2 3 Calculate the IRR for each project. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Project X % Project Y % What is the crossover rate for these two projects? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Crossover rate % What is the NPV of Projects X and Y at discount rates of O percent, 15 percent, and 25 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Project X Project Y 0% 15% 25%

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 15P

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Define each of the following terms: Capital budgeting; payback period; discounted payback period Independent projects; mutually exclusive projects Net present value (NPV) method; internal rate of return (IRR) method; profitability index (PI) Modified internal rate of return (MIRR) method NPV profile; crossover rate Nonnormal cash flow projects; normal cash flow projects; multiple IRRs Reinvestment rate assumption Replacement chain; economic life; capital rationing; equivalent annual annuity (EAA)
CAPITAL BUDGETING CRITERIA: MUTUALLY EXCLUSIVE PROJECTS Project S requires an initial outlay at t = 0 of 17,000, and its expected cash flows would be 5,000 per year for 5 years. Mutually exclusive Project L requires an initial outlay at t = 0 of 30,000, and its expected cash flows would be 8,750 per year for 5 years. If both projects have a WACC of 12%, which project would you recommend? Explain.
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