Question

# You work as a financial analyst for the CFO of a big company, you have been...

You work as a financial analyst for the CFO of a big company, you have been asked to consider the following cash flows (Millions) from two mutually exclisive capital budgeting projects. If the firm's WACC is 14%, find the NVP and IRR and select which one you would choose:

Project 1: CF0= -6M CF1= 2M . CF2=2m CF3=2M . CF4= 2m

Project 2: CF0= -18M CF1= 5.6M CF2= 5.6M CF3= 5.6M CF4= 5.6M CF5= 5.6M

A) Project 1:NVP= -0.17; IRR= 12.59% . Project 2: NPV= -1,68m; IRR= 9.36% . Choose neigher b/c negative

B)Project 1:NVP= .866m; IRR= 19.86% . Project 2: NPV= -1.225m; IRR= 16.8% . Choose Project 1

C)Project 1:NVP= .866m; IRR= 19.86% . Project 2: NPV= -1.225m; IRR= 16.8% . Choose Project 2

D) Project 1: NVP= 6.86m IRR= Cannot calculate . Project 2: NVP= 19,2M IRR= Cannot calculate.

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