Find what is each projects mirr at the cost of capital

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Reference no: EM131286498

Assignment

Directions: Answer the following questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Submit your assignment using the assignment link in the course shell. This homework assignment is worth 100 points.

Use the following information for Questions 1 through 3:

Assume you are presented with the following mutually exclusive investments whose expected net cash flows are as follows:

EXPECTED NET CASH FLOWS:

Year

Project A

Project B

0

-$400

-$650

1

-528

210

2

-219

210

3

-150

210

4

1,100

210

5

820

210

6

990

210

7

-325

210

1. (a) What is each project's IRR?

(b) If each project's cost of capital were 10%, which project, if either, should be selected? If the cost of capital were 17%, what would be the proper choice?

2. (a) What is each project's MIRR at the cost of capital of 10%? At 17%? (Hint: Consider Period 7 as the end of Project B's life.)

3. What is the crossover rate, and what is its significance?

Use the following information for Question 4:

The staff of Porter Manufacturing has estimated the following net after-tax cash flows and probabilities for a new manufacturing process:

Line 0 gives the cost of the process, Lines 1 through 5 give operating cash flows, and Line 5* contains the estimated salvage values. Porter's cost of capital for an average-risk project is 10%.

Net After-Tax Cash Flows

Year

P = 0.2

P = 0.6

P = 0.2

0

-$100,000

-$100,000

-$100,000

1

20,000

30,000

40,000

2

20,000

30,000

40,000

3

20,000

30,000

40,000

4

20,000

30,000

40,000

5

20,000

30,000

40,000

5*

0

20,000

30,000

4. Assume that the project has average risk. Find the project's expected NPV. (Hint: Use expected values for the net cash flow in each year.)

Reference no: EM131286498

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