Question

need to be done in excel formula

11-6NPV Your division is considering two projects with the following cash blem T1-1. What is the project's discounted payback? flows dn 0 Project A Project B -$25 -$20 $5 $10 $10 $9 $17 $6 a. What are the projects' NPVs assuming the WACC is 5%? 10%? 15%? b. What are the projects' IRRs at each of these WACCs? C. If the WACC was 5% and A and B were mutually exclusive, which project would you choose? What if the WACC was 10%215%? (Hint: The crossover rate is 7.8190.)

Answer 1

Ans 1 & 2) it is given in following table

				WACC	5%	10%	15%
	0	1	2	3	NPV			IRR
Project A	-25	5	10	17	$3.52	$0.58	-$1.91	11.10%
Project B	-20	10	9	6	$2.87	$1.04	$                              (0.55)	13.18%

NPV formula in excel is =NPV(rate, values)

to find NPV once should take the respective WACC and then enter all the values of positive cashflow form year 1 to year 3. Once you get the NPV then add the intial cash outflow value.

To find irr onc can use IRR formula which is = IRR(values)

in this one should put all the cashflow and it will throw the IRR value, IRR is same for the project irrespective to WACC.

Ans 3) One should select project A at 5% WACC due to more NPV in comparision to project B. Similarly one should select project B (NPV = $1.04) at 10% WACC but one should not select any project at 15% WACC due to negative values of NPV for both the projects.