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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
11-17Â Â Â Â Â CAPITAL BUDGETING CRITERIA A company has a 12% WACC and is considering two mu- tually exclusive investments (that cannot be repeated) with the following net cash flows:
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Â
5Â Â Â Â Â Â Â Â 6Â Â Â Â Â Â Â Â 7
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|
Project A |
-$300 |
-$387 |
-$193 |
-$100 |
$600 |
$600 |
$850 |
-$180 |
|
Project B |
-$405 |
$134 |
$134 |
$134 |
$134 |
$134 |
$134 |
$0 |
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a.       What is each project’s NPV?
b.      What is each project’s IRR?
c.       What is each project’s MIRR? (Hint: Consider Period 7 as the end of Project B’s life.)
d.      From your answers to Parts a, b, and c, which project would be selected? If the WACC was 18%, which project would be selected?
e.       Construct NPV profiles for Projects A and B.
f.        What is each project’s MIRR at a WACC of 18%?
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