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    NPV

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    Your division is considering two projects with the following net cash flows:

    year Project A Project B
    0 (25) (20)
    1 5 10
    2 10 9
    3 17 6

    a) What are the projects' NPVs, assuming the WACC is 5 percent? 10 percent? 15 percent?
    b) What are the project' IRRs each of these WACCs?
    c) If the WACC were 5 percent and A and B were mutually exclusive, which would you choose? What if the WACC were 10 percent? 15 percent?

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    Solution Preview

    NPV
    Your division is considering two projects with the following net cash flows:

    year Project A Project B
    0 (25) (20)
    1 5 10
    2 10 9
    3 17 6

    a) What are the projects' NPVs, assuming the WACC is 5 percent? 10 percent? 15 percent?

    NPV is calculated by finding the present value of each cash flow, including both cash inflows and outflows, discounted at the project's cost of capital.

    NPV = sum of CFt where CF is the cash flow
    (1 + k)t k is the cost of capital
    t is the ...

    Solution Summary

    This solution is comprised of a detailed explanation to answer the NPV and IRR of each Project.

    $2.19

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