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CAPITAL BUDGETING CRITERIA A company has an 11% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following cash flows: a. What is each project’s NPV? b. What is cach project’s IRR? c. What is each project’s M1RR? (Hint: Consider Period 7 as the end of Project B’s life.) d. From your answers to parts a, b, and c, which project would be selected? If the WACC was 18%, which project would be selected? e. Construct NPV profiles for Projects A and B. f. Calculate the crossover rate where the two projects’ NPVs are equal. g. What is each project’s MIRR at a WACC of 18%?

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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781337395250
BuyFind

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781337395250

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Chapter
Section
Chapter 11, Problem 17P
Textbook Problem

CAPITAL BUDGETING CRITERIA A company has an 11% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following cash flows:

Chapter 11, Problem 17P, CAPITAL BUDGETING CRITERIA A company has an 11% WACC and is considering two mutually exclusive

  1. a. What is each project’s NPV?
  2. b. What is cach project’s IRR?
  3. c. What is each project’s M1RR? (Hint: Consider Period 7 as the end of Project B’s life.)
  4. d. From your answers to parts a, b, and c, which project would be selected? If the WACC was 18%, which project would be selected?
  5. e. Construct NPV profiles for Projects A and B.
  6. f. Calculate the crossover rate where the two projects’ NPVs are equal.
  7. g. What is each project’s MIRR at a WACC of 18%?

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Chapter 11 Solutions

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