This is just a “shell” complete the excel table
I take an assessment and need to help configure the math. reposting, kept receiving error messages when accepting a assignmentBuild a Model
Build a Model
11/26/18
Chapter:
10
Problem:
23
Gardial Fisheries is considering two mutually exclusive investments. The projects’ expected net cash flows are as follows:
Expected Net Cash Flows
Time
Project A
Project B
0
($375)
($575)
1
($300)
$190
2
($200)
$190
3
($100)
$190
4
$600
$190
5
$600
$190
6
$926
$190
7
($200)
$0
a. If each project’s cost of capital is 12%, which project should be selected? If the cost of capital is 18%, what project is the proper choice?
@ 12% cost of capital
@ 18% cost of capital
Use Excel’s NPV function as explained in this chapter’s Tool Kit. Note that the range does not include the costs, which are added separately.
WACC =
12%
WACC =
18%
NPV A =
NPV A =
NPV B =
NPV B =
At a cost of capital of 12%, Project A should be selected. However, if the cost of capital rises to 18%, then the choice is reversed, and Project B should be accepted.
b. Construct NPV profiles for Projects A and B.
Before we can graph the NPV profiles for these projects, we must create a data table of project NPVs relative to differing costs of capital.
Project A
Project B
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
22%
24%
26%
28%
30%
c. What is each project’s IRR?
We find the internal rate of return with Excel’s IRR function:
IRR A =
Note in the graph above that the X-axis intercepts are equal to the two projects’ IRRs.
IRR B =
d. What is the crossover rate, and what is its significance?
Cash flow
Time
differential
0
1
2
Crossover rate =
3
4
The crossover rate represents the cost of capital at which the two projects value, at a cost of capital of 13.14% is:
have the same net present value. In this scenario, that common net present
5
6
7
e. What is each project’s MIRR at a cost of capital of 12%? At r = 18%? Hint: note that B is a 6-year project.
@ 12% cost of capital
@ 18% cost of capital
MIRR A =
DII Labs: Use Excel’s MIRR function
DII Labs: The difference in cash flows between Project “A” and Project “B”.
DII Labs: Net Present Value of “A” discounted at a WACC of 12%
DII Labs: The IRR for the Cash Flow Differential
DII Labs: Net Present Value of “A” discounted at a WACC of 18%
MIRR A =
MIRR B =
MIRR B =
f. What is the regular payback period for these two projects?
Project A
Time period
0
1
2
3
4
5
6
7
Cash flow
(375)
(300)
(200)
(100)
600
$600
$926
($200)
Cumulative cash flow
Intermediate calculation for payback
Payback using intermediate calculations
Project B
Time period
0
1
2
3
4
5
6
7
Cash flow
-$575
$190
$190
$190
$190
$190
$190
$0
Cumulative cash flow
Intermediate calculation for payback
Payback using intermediate calculations
Payback using PERC
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