2 3 Project A Project B + $10 $9 -$25 $5 $10 $17 $6 -$20

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Your division is considering two projects with the following cash flows (in
millions):

 

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%? 15%? (Hint: The crossover rate is 7.81%.)

2
3
Project A
Project B
+
$10
$9
-$25
$5
$10
$17
$6
-$20
Transcribed Image Text:2 3 Project A Project B + $10 $9 -$25 $5 $10 $17 $6 -$20
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