Question

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White Mountain Packaging has a weighted average cost of capital of 10.52 percent and is evaluating two projects: A and B. Project A involves an initial investment of 5,151 dollars and an expected cash flow of 9,169 dollars in 4 years. Project A is considered more risky than an average-risk project at White Mountain Packaging, such that the appropriate discount rate for it is 1.18 percentage points different than the discount rate used for an average-risk project at White Mountain Packaging. The internal rate of return for project A is 15.51 percent. Project B involves an initial investment of 6,789 dollars and an expected cash flow of 11,541 dollars in 3 years. Project B is considered less risky than an average-risk project at White Mountain Packaging, such that the appropriate discount rate for it is 1.55 percentage points different than the discount rate used for an average-risk project at White Mountain Packaging. The internal rate of return for project B is 19.35 percent. What is X if X equals the NPV of project A plus the NPV of project B? Number

Answer 1

X

$2,869.05

Year	Project A	Project B
0	-5151	-6789
1	0	0
2	0	0
3	0	11541
4	9169	0
MARR	0.117	0.0897
NPV	$738.92	$2,130.13
IRR	15.51%	19.35%

Workings

Book1- Excel AutoSave Off Sign in Sha View O Tell me what you want to do File Review Help Home Insert Draw Page Layout Formulas Data Insert A^ A Calibri General 11 Delete Conditional Format as Cell Paste Sort $ % 9 0908 В I U Format Table Styles Formatting Filter Clipboard Alignment Number Styles Cells Edit Font fix C22 0 A В E 18 Year Project A Project B 19 20 0 -5151 -6789 21 1 0 0 22 2 0 23 3 0 11541 24 9169 25 =10.52% +1.18% =NPV(C26,C21:C24)+C20 =IRR(C20:C24) =10.52%-1.55% 26 MARR =NPV(D26,D21:D24)+D20 =IRR(D20:D24) 27 NPV IRR 28 29 30 C27+D27 31 32 X