Projects A and B are mutually exclusive projects. Project A requires an initial investment today of $300 and generates expected cash flows of $100 at the end of each of the next 5 years. Project B requires an initial investment today of $130 and generates expected cash flows of $55 at the end of each of the next 5 years. a. If you plotted the NPV profiles, what would be the "crossover rate" in the graph? (Note you are not asked to actually plot NPV profiles). Please make sure your supporting work shows either algebra or financial calculator input limited to the five financial time value of money keys (N, I or I/YR depending on calculator model, PV, PMT, and FV) - showing excel input or output will not earn credit. b. What is the NPV of project A if the cost of capital is 14.0%? Please make sure your supporting work shows either algebra or financial calculator input limited to the five financial time value of money keys (N, I or I/YR depending on calculator model, PV, PMT, and FV)
2. A project your firm is considering requires an investment today of $1,800 and is forecasted to generate the following cash flows at years 1, 2, 3, and 4 (note the last one is negative).
Time period in years
1 2 3 4
Cash flow:2,000 2,000 2,000 -3,000
Your firm has decided the appropriate cost of capital for the project is 9%.
a. What guidance, if any, does the IRR method provide as to whether the project should be accepted? Please justify or explain your answer. Please make sure your supporting work shows either algebra or financial calculator input limited to the five financial time value of money keys (N, I or I/YR depending on calculator model, PV, PMT, and FV) showing excel input or output will not earn credit.
b. What guidance, if any, does the NPV method provide as to whether the project should be accepted? Please justify or explain your answer. Please make sure your supporting work shows either algebra or financial calculator input limited to the five financial time value of money keys (N, I or I/YR depending on calculator model, PV, PMT, and FV)