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 NPV's for both A and B at the rates in the table below. Round to the nearest dollar/whole number. Interest Rate NPV project A NPV project B 0% 6% 12% 18% 24% 3. Provide the IRR for each project in the table below. show each rate to the nearest tenth of a percent. 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 future values(show your work). Show your new time line with amounts, then find the new IRR (or MIRR) using your calculator or exel. 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 Part 1 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's shown on the verical axis, which project's line would be steeper and thus more sensitive to changes in the interest rate? Hint the project that has the largest ranges of NPV outcomes in your table should be the one more sensitive to interest changes. circle answer. A. poject a B. project b 2. assume the WACC (weighted average of 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 D. Neither Project 3. Assuming the WACC of Cruz inc. is 20% and the projects are independent, which project should Cruz choose? A. Project A only B. Project B only C. Both projects D. neither project
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 IRR for each project in the table below. show each rate to the nearest tenth of a percent.
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 |
Part 1 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's shown on the verical axis, which project's line would be steeper and thus more sensitive to changes in the interest rate? Hint the project that has the largest ranges of NPV outcomes in your table should be the one more sensitive to interest changes. circle answer.
A. poject a
B. project b
2. assume the WACC (weighted average of 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
D. Neither Project
3. Assuming the WACC of Cruz inc. is 20% and the projects are independent, which project should Cruz choose?
A. Project A only
B. Project B only
C. Both projects
D. neither project
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