Your division is considering two investment projects, each ofwhich requires an up-front expenditure of $28 million. You estimatethat the cost of capital is 11% and that the investments willproduce the following after-tax cash flows (in millions ofdollars):
Year | Project A | Project B |
1 | 6 | 18 |
2 | 10 | 12 |
3 | 15 | 8 |
4 | 22 | 5 |
- What is the regular payback period for each of the projects?Round your answers to two decimal places.
- What is the NPV and IRR for each of the projects? Round youranswers to two decimal places.
- If the two projects are independent and the cost of capital is11%, which project or projects should the firm undertake?
- What is the crossover rate? Round your answer to two decimalplaces.
- If the two projects are mutually exclusive and the cost ofcapital is 5%, which project should the firm undertake?
- If the cost of capital is 11%, what is the MIRR of eachproject? Round your answers to two decimal places.
