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submit answers to the following questions/problems in your textbook on a EXCEL
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Chapter 10
Problem 10-5
Chapter 11
Question 11-4
Problem 11-1
Problem 11-2
Problem 11-6
Problem 11-12
10-5 PROJECT SELECTION Midwest Water Works estimates that its WACC is 10.5%. The company is
considering the following capital budgeting projects:
Project Size Rate of Return
A $1 million 120%
B 2 million 11.5
C 2 million 11.2
D 2 million 11.0
E 1 million 10.7
F 1 million 10.3
G 1 million 10.2
QUESTION
11- 4 What is a mutually exclusive project? How should managers rank
mutually exclusive projects
Problems
11-1 NPV Project L costs $65,000, its expected cash inflows are $12,000 per
year for 9 years, and its WACC is 9%. What is the project’s NPV?
11-2 IRR Refer to problem 11-1. What is the project’s IRR?
11.6 NPV Your division is considering two projects with the following cash
flows (in millions):
• 0 1 2 3
Project A -$25 $5 $10 $17
Project B -$20 $10 $9 $6
a. What are the projects’ NPVs assuming the WACC is 5%? 10%? 15%? b. What
are the projects’ IRRs at each of these WACCs? c. If the WACC was 5% and A and
B were mutually exclusive, which project would you
choose? What if the WACC was 10%? 15%? (Hint: The crossover rate is 7.81%.)
11-12 RR AND NPV A company is analyzing two mutually exclusive projects,
S and L, with the following cash flows:
0 1 2 3 4
Project S -$1,000 $870 $250 $25 $25
Project L
-$1,000 $0 $250 $400 $845
The company’s WACC is 8.5%. What is the IRR of the better project? (Hint: The
better project may or may not be the one with the higher IRR.)
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