Assignment 1

submit answers to the following questions/problems in your textbook on a EXCEL

spreadsheet

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.)