task decide upon 2 mutual exclusive projects

Question

Task:

• Decide upon 2 mutual exclusive projects.
• Calculate the income statement, balance sheet, and statement of cash flows for all year
• Calculate the NPV, IRR, and MIRR.
• Check if IRR and MIRR are consistent with the NPV for various rates of cost of capital.

Assumptions:

• One project has a reinvestment in the middle of its productive life of 50% of the initial cost
• Project length is at least 4 years
• 30% annual growth of Revenues
• Profit Margin 2% in t=0 (that might change over time)
• Dividend is 0% of net income
• You are operating at 100% capacity in year zero and thereafter
• Initiating the investments will have some impact on net working capital
• At least one of your balance sheet entries, such as inventory, should be forecasted based on a regression (utilize the attached historic data)
• If you need additional financing, finance 40% with debt and 60% with equity
• You will finance 40% of the asset with debt in either case
• Taxes are 35%, cost of debt is 5% and cost of equity is 12%
• Customers pay after 60 days
• Suppliers are paid after 90 days
• If you sell your assets in the final year you will incur an extraordinary gain