West Coast Chemical Company (WCCC) is considering two mutually exclusive investments. The projects' expected net cash flows are as follows:
Expected Net Cash Flows
Year Project A Project B
0 $(45,000) $(50,000)
1 (20,000) 15,000
2 11,000 15,000
3 20,000 15,000
4 30,000 15,000
5 45,000 15,000
a. Construct NPV profiles for Projects A and B.
b. Calculate each project's IRR.
c. If the required rate of return for each project is 13 percent, which project should West Coast select? If the required rate of return is 9 percent, what would be the proper choice? If the required rate of return is 15 percent, what would be the proper choice?
d. At what rate do the NPV profiles of the two projects cross?