FIGURE 9.8 NPV Profiles for Mutually Exclusive Investments 70 60 50 InvestmentB 40 Investment A 30 26.34 Crossover point 20 NPVB NPVA IRRA =24% 10 NPVA NPVB R%) 25 30 15 20 10 5 IRR 21% 11.1% -10 NPV ($)
I NEED PART 4 and MULTIPLE CHOICE PLEASE (BOLD PARTS AT THE END)
Part 1: The CFO of Cruz, inc. is considering Projects A and B which are considered equally risky; the projected cash flows for the projects are shown below.
|
T= |
0 |
1 |
2 |
3 |
4 |
|
Project A |
(14,500) |
9,900 |
4,500 |
4,500 |
3000 |
|
Project B |
(14,250) |
5,250 |
5,250 |
5,250 |
7,500 |
1. what is the "crossover rate" for the two projects? Show the difference between the two projects' timeline in the space above. round your answer to the nearest tenth of a percent
2. Provide the
|
Interest Rate |
NPV project A |
NPV project B |
|
0% |
||
|
6% |
||
|
12% |
||
|
18% |
||
|
24% |
3. Provide the
Project A IRR?
Project B IRR?
4. Calculate the MIRR for project A, and B using a WACC (discount rate). use the "combination approach" by finding the
|
T= |
0 |
1 |
2 |
3 |
4 |
|
Project A |
(14,500) |
9,900 |
4,500 |
4,500 |
3000 |
|
Project B |
(14,250) |
5,250 |
5,250 |
5,250 |
7,500 |
Multiple choice
1. If each of the two projects A and B are graphed with the interest rates shown on the horizontal axis and NPV shown on the vertical axis (image attached), which project's line would be steeper and thus more sensitive to changes in the interest rate?
A) Project A
B) Project B
2. Assuming the WACC (weighted average cost of capital) of Cruz, inc. is 12% and the projects are mutually exclusive, which project should Cruz choose? A) Project A only B) Project B only C) Both Projects or D) Neither project. Now assume the WACC of Cruz, inc. is 20% and the orojects are independent, which should Cruz choose? A) Project A only B) Project B only C) Both Projects or D) Neither project
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