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(Solution Download) NPV profiles: scale differences

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A company is considering two mutually exclusive expansion plans. Plan A requires a $40 million expenditure on a large-scale integrated plant that would provide

 

expected cash flows of $6.39 million per year for 20 years. Plan B requires a $12 million expenditure to build a somewhat less efficient, more labor-intensive

 

plant with an expected cash flow of $2.69 million per year for 20 years. The firm's WACC is 9%.

 

 

     

  1. Calculate each project's NPV. Round your answers to two decimal places. Enter your answers in millions. For example, an answer of $10,550,000 should be

     

    entered as 10.55.

     

    Plan A $ million

     

    Plan B $ million

     


     

    Calculate each project's IRR. Round your answer to two decimal places.

     

    Plan A %

     

    Plan B %

     


     

  2.  

  3. Graph the NPV profiles for Plan A and Plan B and approximate the crossover rate to the nearest percent.

     

    %

     


     

  4.  

  5. Calculate the crossover rate where the two projects' NPVs are equal. Round your answer to the nearest hundredth.

     

    %

     

  6.  

 

 

 

 







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