Explore BrainMass

Explore BrainMass

    WACC: Tesar Chemicals, Malholtra Inc

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    1. Tesar Chemicals is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. The CEO believes the IRR is the best selection criterion, while the CFO advocates the NPV. If the decision is made by choosing the project with the higher IRR rather than the one with the higher NPV, how much, if any, value will be forgone, i.e., what's the chosen NPV versus the maximum possible NPV? Note that (1) "true value" is measured by NPV, and (2) under some conditions the choice of IRR vs. NPV will have no effect on the value gained or lost.

    WACC: 7.50%
    Year 0 1 2 3 4
    CFS -$1,100 $550 $600 $100 $100
    CFL -$2,700 $650 $725 $800 $1,400

    2. Malholtra Inc. is considering a project that has the following cash flow and WACC data. What is the project's MIRR? Note that a project's MIRR can be less than the WACC (and even negative), in which case it will be rejected.
    WACC: 10.00%
    Year 0 1 2 3 4
    Cash flows -$850 $300 $320 $340 $360

    © BrainMass Inc. brainmass.com June 4, 2020, 3:57 am ad1c9bdddf
    https://brainmass.com/business/capital-budgeting/wacc-tesar-chemicals-malholtra-inc-544764

    Solution Preview

    See excel, attached.

    For Tesar Chemicals, the highest IRR is CFL which is also the ...

    Solution Summary

    Your tutorial gives you a format in excel for similar problems and a structure to help you see how to organize the data to solve these in excel.

    $2.19

    ADVERTISEMENT