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    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 Preview

    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 ...

    Solution Summary

    Then solution explains how to evaluate two mutually exclusive projects.

    $2.19

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