Mutually Exclusive Projects
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This is a homework problem from ch. 10 of "Corporate Finance: A Focused Approach (2nd ed). Please use the attached template from same book Web site. I can not get same answers as given in class. Please explain steps/formulas, verbage etc in separate Word document if possible. Thank you.
question 10-18:
Gardial Fisheries is considering 2 mutually exclusive investments. The projects expected net cash flows are as follows:
expected net cash flows
year 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 projects cost of capital was 12% which project should be selected? If cost of capital was 18% what would be the proper choice?
b. construct NPV profiles for proj a and b
c. what is each projects 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%? (period 7 is end of project b's life
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Solution Summary
Then solution explains how to evaluate two mutually exclusive projects.
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Please see the attached file. The cell formula will explain how the figures have been input.
a. If each projects cost of capital was 12% which project should be selected? If cost of capital was 18% what would be the proper choice?
We should select the project with a higher NPV. We calculate the NPV of the two projects, using the NPV function in excel. At 12% the NPV of A is higher and so should be selected. At 18% the NPV of B is higher ...
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