Spread sheet problem 1 answer below »

Start with the partial model in the file Ch10 P23 Build a Model.xls on the textbook' s

Web site. Gardial Fisheries is considering two mutually exclusive investments. The

projects' expected net cash flows are as follows:

Expected Net Cash Flows

Year Project A Project B

0 Af?cA?†'$375 Af?cA?†'$575

1 Af?cA?†'300 190

2 Af?cA?†'200 190

3 Af?cA?†'100 190

4 600 190

5 600 190

6 926 190

7 Af?cA?†'200 0

a. If each project' s cost of capital is 12%, which project should be selected? If the

cost of capital is 18%, what project is the proper choice?

b. Construct NPV profiles for Projects A and B.

c. What is each project' s IRR?

d. What is the crossover rate, and what is its significance?

e. What is each project' s MIRR at a cost of capital of 12%? At r = 18%?

(Hint: Consider Period 7 as the end of Project B' s life.)

f. What is the regular payback period for these two projects?

g. At a cost of capital of 12%, what is the discounted payback period for these two

projects?

h. What is the profitability index for each project if the cost of capital

is 12%?

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