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# evaluate cost of capital, NPV, IRR

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Gardial Fisheries is considering two mutally exclusive ingestments. The projects expected cash flow are as follows:

Expected Net Cash Flow
Year Projected A Projected 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 you were told that each projects's cost of capital was 12%, which project should be selected? If the cost of capital was 18%, what would be the proper choice?
b) Construct NPV profiles for A and B
c) What is each project's IRR?
d) What is the crossover rate, and what is its significance?
e) What is each project's MIRR at a cost of capital of 12%? At r=18% (Hint: Consider Peroid 7 as the end of Project B's life)
f) What is the regular payback for those two projects?
g) At a cost of capital of 12%, what is the discounted payback period for these two projects?

#### Solution Preview

Expected Net Cash Flow

Year Projected A Projected 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 you were told that each projects's cost of capital was ...

#### Solution Summary

This explains the steps to evaluate cost of capital, NPV, IRR

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