You must analyze two projects, X and Y. Each project costs $10,000, and the firm’s WACC is 12%. The expected cash flows are as follows: a. Calculate each project’s NPV, IRR, MIRR, payback, and discounted payback. b. Which project(s) should be accepted if they are independent? c. Which project(s) should be accepted if they are mutually exclusive?
You must analyze two projects, X and Y. Each project costs $10,000, and the firm’s WACC is 12%. The expected cash flows are as follows: a. Calculate each project’s NPV, IRR, MIRR, payback, and discounted payback. b. Which project(s) should be accepted if they are independent? c. Which project(s) should be accepted if they are mutually exclusive?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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You must analyze two projects, X and Y. Each project costs
$10,000, and the firm’s WACC is 12%. The expected cash flows are as follows:
a. Calculate each project’s NPV, IRR, MIRR, payback, and discounted payback.
b. Which project(s) should be accepted if they are independent?
c. Which project(s) should be accepted if they are mutually exclusive?
d. How might a change in the WACC produce a conflict between the NPV and IRR rankings
of the two projects? Would there be a conflict if WACC were 5%? (Hint: Plot the
NPV profiles. The crossover rate is 6.21875%.)
e. Why does the conflict exist?
Transcribed Image Text:2
Project X
Project Y
+
$3,000
$3,500
-$10,000
$6,500
$3,500
$3,000
$3,500
$1,000
$3,500
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