A company is considering two mutually exclusive expansion plans. Plan A requires a $41 million expenditure on a large-scale integrated plant that would provide expected cash flows of $6.55 million per year for 20 years. Plan B requires a $12 million expenditure to build a somewhat less efficient, more labor-intensive plant with an expected cash flow of $2.69 million per year for 20 years. The firm's WACC is 10%
A. Calculate each project's NPV. Round your answers to two decimal places. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55.
Plan A $ million
Plan B $ million
-.Calculate each project's IRR. Round your answer to two decimal places.
Plan A %
Plan B %
b. Graph the NPV profiles for Plan A and Plan B and approximate the crossover rate to the nearest percent. %
c. Calculate the crossover rate where the two projects' NPVs are equal. Round your answer to the nearest hundredth. %
d. Why is NPV better than IRR for making capital budgeting decisions that add to shareholder value?